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In April, sales of Hyundai Motors, Kia Motors, General Motors Korea, Renault Samsung and Ssangyong Motors in the global market increased by 8% year-on-year to more than 800,000 vehicles. Sales outside South Korea increased 7.7% to 673,000 units. Among them, Ssangyong Motor's exports increased by 6.9%, and Renault Samsung's exports increased by 0.8% year-on-year.
In addition to last year, South Korean autos and parts have maintained a strong growth trend in recent years due to the shrinking European automobile consumption and the price cuts of Japanese cars in many countries.
A few days ago, the International Economic Cooperation and Development Organization raised its GDP forecast for South Korea this year to 4%. The OECD pointed out that "free trade agreements with the European Union, the United States, Canada and Australia will have a significant role in promoting foreign trade and domestic production in South Korea."
Not long ago, South Korea has reached a free trade agreement with Canada and Australia. This is an important trade agreement since the establishment of free trade relations between South Korea, the United States, and the European Union, marking a new stage in the expansion of South Korea’s foreign trade. Since Canada and Australia are not car powerhouses, establishing free trade relations with these two countries is very beneficial to stimulate the export of Korean cars and parts and bring new life to the South Korean auto industry that has stagnated for years.
Trade with South Korea and Australia facilitated the export of Korean cars. The free trade negotiations between South Korea and Canada lasted for nine years. An agreement was finally reached in March this year and it is tentatively scheduled to take effect next year. This is the first free trade agreement reached between Canada and countries in the Asia Pacific region. The Canadian side stated that it hopes to reduce its dependence on the U.S. market by expanding its trade relations. The two sides agreed that within 10 years after the agreement comes into force, tariffs on some products will be reduced each year.
Canada currently imposes a tariff of 6.1% on imported passenger cars. After the agreement is in force two years later, the import duties on passenger cars will be completely eliminated. Auto parts tariffs are cancelled at the time of entry into force or within 3 years of entry into force. Statistics show that last year, passenger cars accounted for 42.8% of South Korea’s total exports to Canada.
Canadian authorities expressed strong dissatisfaction with South Korea’s establishment of a free trade relationship, even with fear. Canadian Ontario and Ford Motor Canada have attacked the Canadian government, saying that establishing a free trade relationship with South Korea has hurt the Canadian auto industry. Diana Craig, head of Ford Motor Canada, believes that the Korean auto market will not open the doors for cars produced in Canada, and the free trade relationship with South Korea is unfair to automakers in other countries. She said: “Korea has always used non-tariff measures such as the manipulation of exchange rates to protect its domestic auto industry. In this unfair competition environment, no car manufacturer is willing to bear it.†She said that after the cancellation of the 6.1% tariff, South Korea’s Hyundai Motor and Kia Motors The rapid occupation of the Canadian market will destroy the Canadian automobile industry, which is a pillar industry in Canada.
The car is also one of the main commodities that South Korea exports to Australia. The free trade agreement reached between Canada and Australia is also very favorable for Korean auto exports. In April this year, Australia and South Korea formally signed a free trade agreement. The agreement is subject to the final approval of the two countries’ parliaments. If all goes well, the Australian-Korean free trade agreement is expected to take effect next year. After the entry into force, Australia no longer imposes a 5% tariff on Korean cars. At the same time, the tariffs on Korean auto parts will be cancelled.
Not long ago, multinational car companies such as GM, Mitsubishi, Ford and Toyota announced the suspension of production of new cars in Australia, which means that after two or three years, the Australian automobile market will rely on imports. Korean cars will be more competitive in the Australian market after they have been exempt from customs duties. For South Korean vehicle companies, it is clearly advantageous to conclude a free trade agreement with Australia. However, South Korea's auto parts industry may face greater pressure. Australia exports about 130 million U.S. dollars worth of engines and transmissions each year. South Korea's exemption from 8% tariff on auto parts in Australia will increase the competitiveness of Australian products.
Actively expanding overseas markets Korea is a typical export-oriented economy. In recent years, the country has actively pursued the establishment of foreign free trade relations, and its trade strategy is aggressive.
At present, South Korea has signed 12 free trade agreements with foreign countries, of which 9 have already entered into force. Through the free trade agreement, South Korea's foreign free trade covers 60% of the global market. In addition, South Korea still has 14 new goals for its own free trade relations and is actively fighting for negotiations. The current free trade agreements that have a major impact on the Korean auto market include the South Korea free trade agreement that entered into force in July 2011 and the free trade agreement between South Korea and the United States that came into force in March 2012.
Before Korea and the European Union reached an agreement, the EU imposed a 10% tariff on passenger cars and trucks imposed a 22% tariff. South Korea's tariffs on these two products are 8% and 10% respectively. Five years after the entry into force of the South-South free trade agreement, both parties will cancel all tariffs.
Compared with South Korea's vehicle industry, the South Korea-Korea Free Trade Agreement has greater benefits for Korean parts and components companies. The European Union imposed a 2.7% to 4.5% import duty on Korean auto parts. After the abolition of tariffs, European automakers imported more parts from South Korea when purchasing globally, enabling South Korean suppliers to improve their profitability while expanding their customer base.
Prior to the entry into force of the free trade agreement, South Korea imposed a 8% tariff on US cars and parts, while the United States imposed a 2.5% tariff on South Korea. The free trade agreement reached between South Korea and the United States is conducive to Korean auto exports to a certain extent. Last year, South Korea’s exports of cars to the United States increased 7.9% to 6.81 million.
Exports of parts and components will be driven by South Korea's export of cars, mobile phones and other living electronic products. With the expansion of South Korea’s foreign trade relations, its auto parts exports have increased rapidly, and auto parts have ranked seventh in South Korea’s export commodities, which has made South Korea’s top ten export commodities.
Since 2009, Korean auto parts exports have hit a record high each year. Last year, South Korea’s auto parts exports were US$26.085 billion, a year-on-year increase of 6%, a record high. According to statistics, last year, Korea’s auto parts trade surplus reached 21.197 billion U.S. dollars, reaching a record high.
Compared with auto parts, South Korea's auto exports have not achieved significant results. In addition, due to factors such as international market fluctuations, South Korea's vehicle export situation is not stable. In 2011, South Korea exported 3,151,708 vehicles, a year-on-year increase of 13.7%. In 2012, exports grew by 3.6%, setting a record high. Last year, South Korea’s auto exports fell by 2.7% year-on-year, due to the continuing economic downturn in the main Korean car market.