(Asia Pulse/Yonhap)

Mar 28, 2006

FTA to cut auto sales

SEOUL - A free trade agreement between South Korea and Japan is expected to reduce domestic sales of local carmakers by up to 226,000 units annually.

The report by the state-run Korea Institute for International Economic Policy (KIEP) also said local electronics companies will suffer 2.7 trillion won (US$2.7 billion) in lost sales, and the chemical sector would see its sales decrease 480,000 tons annually.

The research institute said local companies have increased their overseas sales as well as domestic sales in the past few decades thanks to their efforts to improve product quality.

Should a trade pact with Japan be forged, tariffs on Japanese goods, currently averaging 8%, will be removed, and local industries would be hit hard, the report said.

The two countries began FTA talks in December 2003, but the negotiations have been stalled since November 2004 when they failed to reach agreement on the opening of Japan’s agricultural market.

South Korea has accused Japan of being unwilling to open the market wide enough.

Last month, South Korea and the United States announced in Washington that they will begin negotiations for an FTA with the aim of concluding a deal in the first half of next year.

Meanwhile, a ballooning trade deficit with Japan has harmed South Korea’s economic fundamentals, posing a particular threat for the nation’s struggling small and medium-sized companies, a report said Monday.

Last year, South Korea posted a $24 billion trade deficit with Japan, with the bulk of the loss coming from the trade in parts and materials, threatening the nation’s smaller and more financially fragile manufacturing sector, the report said.