Korea-Mexico FTA negotiations signal new phase in bilateral trade relations
Business Korea | 11 April 2025
Korea-Mexico FTA negotiations signal new phase in bilateral trade relations
by Jung Min-hee
The Korean government announced plans to accelerate the resumption of free trade agreement (FTA) negotiations with Mexico on April 11.
This strategic move aims to support domestic automobile companies that export vehicles to the United States tariff-free by leveraging the United States-Mexico-Canada Agreement (USMCA). The announcement comes amidst a backdrop of significant trade dynamics and evolving global economic conditions.
Last year, according to the Ministry of Trade, Industry, and Energy, 16.46 million automobiles were sold in the U.S. market, accounting for 18% of the 91.57 million vehicles sold worldwide. Despite this robust market performance, the U.S. recorded $197.1 billion in automobile imports, with Mexico being the largest deficit country, posting a trade deficit of $88.7 billion last year alone.
The ’Big Three’ U.S. automakers—General Motors (GM), Ford, and Stellantis—have capitalized on Mexico’s low labor costs and tariff-free exports under USMCA by establishing operations there. Similarly, Korean companies such as Kia Motors (Mexico City, Monterrey), Hyundai Transys (Monterrey), Hyundai Mobis (Monterrey), Hyundai Wia (Monterrey), Kyungshin (Durango, Obregon), LS Automotive (Durango), Yura Corporation (Coahuila), and Hankook Tire (Mexico City) have set up manufacturing facilities in various Mexican cities.
A government official highlighted Mexico’s advantageous position: "The U.S. has been imposing a 25% tariff on automobiles imported domestically since the 3rd, but for non-U.S.-made cars, they deduct the value of U.S.-made parts." He further explained that "companies with factories in Mexico are likely to use U.S.-made parts, and tariffs are not imposed on parts meeting USMCA requirements."
The Korean government’s plan includes efforts to reduce or eliminate this 25% tariff imposed on Korea while facilitating an FTA with Mexico to lower tariff burdens on companies and promote exports. Central and South America are among Korea’s top ten export destinations; last year alone, Korea recorded $29.024 billion in exports to these regions.
Historically, Korea and Mexico signed the Korea-Mexico Investment Guarantee Agreement in 2000 and held two rounds of FTA negotiations until 2008. However, progress has been slow due to concerns about deepening trade deficits if an FTA is concluded—a concern that has persisted for over two decades.
Despite these challenges, recent changes in global trade policies have created a conducive environment for concluding an FTA between Korea and Mexico. The Korean government plans to attempt negotiations with the goal of reaching an agreement by early next year.
As of 2023, Korea has concluded FTAs with 59 countries, accounting for 82% of its total trade volume. An FTA with Mexico could significantly enhance this network by providing synergistic effects across various industries.
"If an FTA is concluded with Mexico," stated a government official, "it could benefit auto parts companies in Korea." He emphasized that "we plan to promptly pursue the resumption of negotiations."
