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Korean auto, steelmakers uneasy over US’ demand for FTA revision

PUBLISHED : July 13, 2017 - 17:55

UPDATED : July 13, 2017 - 17:55

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[THE INVESTOR] An official demand by US trade representatives to amend a bilateral free trade agreement with Korea unnerved major exporters here on July 13 over the potential impact on their businesses.

Cars and steel products made in Korea are expected to be up for discussion first, as US President Donald Trump views the FTA as having benefitted such local companies the most, not those in the US.

The US has also been slapping anti-dumping tariffs on Korean steel products, saying their entry into the US market at competitive prices contributes to the US trade deficit.

But Korean companies and trade experts point out gaps in US administration’s logic.

Korean cars have enjoyed benefits from the agreement, which lifted tariffs, but the number of cars exported after the deal came into effect has declined.

According to the Korea International Trade Association -- the nation’s largest group of exporters -- Korean carmakers exported vehicles worth US$15.4 billion to the US, nine times higher than US cars shipped to Korea.

But in terms of growth rate, Korean cars exported to the US dropped 10.5 percent while imported US cars grew 37 percent. This suggests that the US is enjoying the benefits of free trade the most, a local expert said.

For Hyundai Motor and its sister companyKia, the US is the second-largest market after China, as they sell around 1.4 million vehicles there a year, about 16-17 percent of the total.

If the revision ends up excluding cars from the nontariff list, Korean carmakers could lose their price competitiveness to some extent, as paying tariffs means lower margins.

“But (a revision) would have limited impact as Korean carmakers already have manufacturing facilities in the US,” said an official on condition of anonymity. “We will closely monitor the progress because we have no idea where the talks will go.”

About half of the cars Hyundai and Kia sell in the US sales are made in the US, but those exported from Korea include high-end Genesis models. If sales of luxury cars are affected it could dent efforts raise the Hyundai’s brand image.

Some steel industry insiders also expressed concerns over the US’ intention to include steel on the negotiation list, stressing that they have already been under pressure over a US anti-dumping probe.

Posco, the nation’s largest steelmaker, for instance, has already been slapped with additional tariffs by the US government -- 60 percent anti-dumping tariffs on both cold- and hot-rolled steel sheets last year.

Expressing concerns, a Posco official said the company has been seeking to diversify export destinations and entering new markets, in the face of rising protectionism.

The portion of steel exported to the US is not that big, he added. Of the 33 million tons of steel produced in Korea, around 1 million tons or 3 percent is exported to the US.

Experts here said the US’ focus on changing the auto and steel segments could be a convincing issue for the Trump administration, as the zero tariff deal on cars have benefited Korean carmakers and the current trend seen in Korea is that consumers prefer European cars. As of last year, South Korea saw US$23.3 billion in trade surplus with the US.

“I think that the US is making a strategic approach, viewing that free trade deals it signed with its partners have caused trade imbalances and taken jobs from American soil,” said Mun Byung-ki, a senior researcher at the department of analysis and forecast at KITA.

Even if the two countries agree to readjust tariffs on certain products, such as auto and steel, it would have little effect role in resolving the US’ trade imbalance.

“The FTA renegotiation will have limited impact on trade balance, as the two countries have different industrial, economic structures,” he said. “For instance, major export items from Korea are cars while agricultural products are major import items from the US. ... The trade imbalance that the US raises is more like a structural issue, not because there is no trade barrier.”

By Cho Chung-un/The Korea Herald (christory@heraldcorp.com)

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