Korea-Chile FTA marks third anniversary

Chosun Ilbo | Mar. 23, 2007

Korea-Chile FTA Marks Third Anniversary

Korea’s first free trade agreement with Chile, right on the other side of the globe, went into effect on April 1, 2004, bringing significant changes. We enjoy good, cheap Chilean wine and samgyeopsal (fresh bacon), while in Chile, Korean-made mobile phones are a big hit. But our trade deficit increased due to greater raw material imports and some farmers sustained harm. So what have been the most significant effects ?

◆ Cars and cell phones

"Walk along the streets of Santiago. One in four cars is made in Korea, and one of four Chileans carries a Korean-made mobile phone," says Hong Sung-jik, the head of Samsung Electronics Chile, who has marketed electronics there for six years. "With 6 percent customs duties on cell phones removed thanks to the Korea-Chile FTA, we managed to take a large portion of the market from Motorola and Nokia." The number of handsets Samsung sold in Chile quintupled from 200,000 in 2003 to 1.1 million in 2006. Samsung’s Chilean phone market share climbed from sixth or seventh in 2003 to second last year. Samsung also holds the top spot in the camcorder market with 40 percent for the third consecutive year. Hyundai Motor sold over 20,000 cars in Chile last year, jumping to third in terms of market share ; the market share of Korean-made cars rose from 18.5 percent in 2003 to 23.5 percent in 2006. "We’re attacking the Central and South American market including Brazil and Argentina with Chile serving as the beachhead," a Hyundai staffer says. Since the conclusion of the Korea-Chile FTA, Korea’s exports to Chile trebled from US$517 million in 2003 to $1,560 million last year.

◆ Imports from Chile

But there are shadows as well. Our rising imports of raw materials like copper and tin and farm products tend to boost the trade deficit with Chile. With imports of Chilean products jumping as much as 67 percent last year from the previous year, our trade deficit soared from $730 million in 2003 to $2.24 billion last year. "Of our imports last year, 78 percent were copper products like copper ingots and ore. The rising trade deficit is attributable mainly to a 83 percent rise in the world copper price," explains an official on the Korea-U.S. FTA Support Committee. Chilean pork imports more than doubled from $23 million in 2003 to $54.3 million last year. Chilean pork occupies about 10 percent of the local pork market.

But since cheap Chilean wine flooded the Korean market since the FTA went into effect, enjoying a 17 percent market share, the price of expensive French and Italian wines has fallen. Chilean pork, too, traveling 180,000 km across the Pacific, enjoys a favored spot on Korean tables. Chilean samgyoepsal is popular in the country because it tastes much like its local counterpart. Chile’s weather being similar to Korea’s, the meat-fat ratio of Chilean pigs is similar to that of native pigs. Despite lowering customs duties from 26.2 percent in 2003 to 16.7 percent this year, Chilean samgyeopsal is the most expensive among imported fresh bacon. But that still means it’s about 10 percent less than local product.

◆ 10,000-Plus Korean farming households out of business

Korea’s farming households sustained no small damage. Out of the W1.2 trillion (US$1=W938) set aside for business closure compensation to farming households hurt by the FTA, W144.5 billion was paid out to over 13,000 farming households that stopped running grape, kiwi and peach orchards. That was 9,900 peach, 1,100 grape and 300 kiwi growers. Noting that the cultivation area of grape and kiwi increased more than 30 percent between 2003 and 2005 and that their prices rose by over 10 percent, the government claims the damage done to the farmers is small. "It’s rubbish to say the damage is small on the basis of increased prices, which were a result of business closures by over 10,000 farmers," a senior official with a farmer organization says. "According to the Korea Rural Economic Institute, the loss in domestic sales for orchard and livestock farmers exceeds W40 billion, which the government deliberately omits in its statistics."

source: Chosun Ilbo