FTA to boost auto industry, hurt drug makers, farmers
Korea Times 11-23-2011
FTA to boost auto industry, hurt drug makers, farmers
By Kim Tong-hyung
After four years of circular debate, political feuds and a last-minute tear gas attack, the free trade pact between Korea and the United States is finally set to take effect.
The parliamentary passage of the deal brings together the world’s biggest and 12th largest economies, whose current annual exchange of goods and services is valued at $90 billion.
It might be premature to pinpoint how the Korea-U.S. free trade agreement (FTA), which could come into effect as early as January, will affect different industries and consumers here and identify the winners and losers among them.
But there are a few obvious points. Motorists clearly wouldn’t mind paying 1.3 million won (about $1,130) less for an American-made Toyota Camry, while pharmaceutical companies and farmers could expect a kick in the teeth.
The trade deal could also provide a crucial test for Korea’s economic mettle. The country has long enjoyed a surplus in trade with the United States but the expected rise in imports of U.S. goods suggests that the annual $12 billion cushion will likely shrink from now on.
The ruling Grand National Party (GNP) exploited its majority in the National Assembly to ratify the deal Tuesday, triggering fierce resistance from opposition lawmakers, including the Democratic Labor Party’s Kim Sun-dong, who attempted to halt the process by releasing tear gas into the legislative chamber. U.S. President Barack Obama signed bills for the deal to become law last month after the U.S. Congress passed them.
The FTA will see tariffs whipped off most industrial goods and food products between the two countries, although each government took the liberty of installing speed bumps on items their voters react sensitively to.
Cars have been a particular point of contention during the trade discussions. The two countries agreed to revise original terms last year to soften the effect of tariff cuts on their automotive industries.
The United States will eliminate its 2.5 percent tariff on Korean passenger cars and electric vehicles four years after the deal takes effect, instead of immediately or after three years as previously agreed. Korea will cut its 8 percent tariff on imported American cars to 4 percent immediately and drop the rate to zero over the following four years.
For cargo trucks, the United States gets to keep its 25 percent tariff for seven years before eliminating it entirely over the next two years, while Korea eliminates its 10 percent tariff immediately after the deal takes effect.
Some observers believe that the FTA wouldn’t help Korean carmakers like Hyundai and Kia as dramatically as one might think, considering that many of their cars sold in the America are actually made in factories there. But for automotives parts makers like Hyundai Mobis, S&T Daewoo, Mando and Nexen Tire, the U.S. market may provide them with an opportunity to hit the gold trail.
Korean technology giants like Samsung Electronics and LG Electronics are giddy, with the trade deal requiring the United States to lift its 1.5 to 5 percent tariffs on Korean consumer electronics goods and televisions. Fabric companies are upping their export expectations as well with the United States eliminating its tariffs on their products that averaged around 13 percent.
``As of now, it looks like automakers, auto parts makers, information technology (IT) companies and machinery manufacturers, which have always accounted for a significant part in Korea’s export lineup, will benefit most,’’ said Ma Ju-ok, a researcher from Kiwoom Investment and Securities.
The FTA however, has Korean drug makers in the mood for painkillers. The trade deal provides stronger intellectual property protection for American pharmaceutical companies in their upcoming products and this is expected to significantly hurt their smaller Korean rivals, which have relied heavily on sales of generic drugs.
The income levels of Korean farmers could also be shaved. According to a report from the Ministry of Food, Agriculture, Forestry and Fisheries, the Korea-U.S. FTA will lead to a reduction of 12.67 trillion won (about $10.5 billion) in production by the country’s agricultural, farming and fisheries industries in the next 15 years.
The livestock industry in particular could take a severe beating, with the ministry forecasting the sector’s production to decline by nearly 7.3 trillion won in the first 15 years following the implementation of the FTA.
Processed food companies aren’t too happy about the trade deal as the reduction of the 8 percent tariffs on imported U.S. snacks could increase competition here. Imported American beer could become 20 percent cheaper with Korea phasing out the 30 percent tariffs over seven years. The FTA will also influence the reshaping of the Korean television industry, with American media companies enjoying larger freedom to provide pay-television content.
