US Deal to Boost South Korea's Automobile, Textile Exports - Experts

Apr 02, 07:29 AM

Current Headlines: Text of report in English by South Korean news agency Yonhap

Seoul, April 2 (Yonhap) - The landmark free trade pact with the United States is forecast to help boost South Korea's exports to the world's largest economy with the automobile and textile sectors benefiting the most from the deal, experts and reports said Monday.

According to the Korea Institute for International Economic Policy (KIEP), exports from Asia's third-largest economy to the US will gain as much as 15.1 per cent, or US$7.1 billion.

South Korea is Washington's seventh-biggest trading partner. In 2006, the US was South Korea's third-largest market, with two-way trade totalling $74.5 billion.

South Korea's exports to the US reached $41.7 billion in 2006, accounting for 13.3 per cent of its total outbound shipments, a steep drop from 2000 when that figure was 20.1 per cent.

South Korean products have also seen a decline in their share of the US market. In 1995 its goods accounted for 3.2 per cent of the world's biggest marketplace, but saw that number drop to 2.6 per cent in 2005.

"For South Korea, an export-driven economy, the FTA deal will help South Korean products gain price competitiveness in the US market, and their market share will rise as well," said Chung Jae- hwa, a researcher at the Korea International Trade Association (KITA).

For one, South Korean automobile exports to the US could rise by nearly $900 million a year if the FTA lifts all duties on them, according to the KIEP.

Currently, South Korea imposes an 8-per cent tariff on US cars, and the US levies a 2.5-per cent tariff on South Korean vehicles.

If tariffs are eliminated immediately, South Korean auto exports to the US are likely to expand by $860 million in the first year, up 10.7 per cent from shipments without an FTA, the report showed.

Ahn Su-woong, an analyst at Woori Investment & Securities Co., also forecast that South Korean automakers will be in a better position to benefit from price competitiveness in the US market.

"On the other hand, a large segment of the Korean auto market is taken by small-and medium-engine vehicles, not the mainstay of major US producers," he said.

In 2005, South Korea exported $8.73 billion worth of automobiles to the US Auto exports accounted for about 28 per cent of the country's total exports to the US in 2005.

Lee Hang-koo, a researcher at the Korea Institute for Industrial Economics and Trade (KIET), said the FTA could also boost the domestic auto parts industry and create more jobs in the sector.

"The automobile sector could create more than 10,000 jobs with the FTA," Lee said.

He said the deal would provide Korean manufacturers an advantage over competitors in striking outsourcing deals with American automakers. US automakers have moved to expand outsourcing of parts for cost cutting and they are paying more attention to Korean parts, Lee said.

In addition, the FTA with the US would reduce the reliance of South Korean auto parts makers on Japanese and German parts, he said.

The FTA deal will help boost South Korea's textile exports to the US market, experts said.

It could increase as much as $400 million a year if the US lifts its duty of 8.9 per cent on fibres, clothing and fabrics, according to the KIET

In 2006, South Korea exported textiles and other clothing worth $2.3 billion to the US That market accounted for 17 per cent of South Korean exports, but the share will rise to 20 per cent as well, it said.

"Price competitiveness is the key to accessing the US market," said Lee Jae-duck, a researcher at the KIET. "It would surely increase demand for South Korean textile products."

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