Korean car parts makers eagerly awaiting FTA ratification

"We`re staking our fate on advancing into the U.S. market, something we`ve long yearned for. But the National Assembly is still dragging its feet...It`s sheer torture."

A small manufacturer of electronic equipment for cars is paying close attention to the parliamentary passage of a bill on ratification of the free trade agreement with the U.S.

An American carmaker contacted the company early this year, saying it wants to use the Korean company`s parts for its new car. The American company said, "Let`s sign a deal as soon as the free trade agreement takes effect."

Following this proposal, the Korean company has finished setting up all facilities necessary for exports but remains jittery. A company source said, "We don`t have much time to keep up with the schedule for the new car`s release," adding, "We aren`t sure how long the American carmaker can wait."

○ Distressed car parts makers

Korean car parts makers are keeping a close eye on the National Assembly. They want the ratification bill to pass as soon as possible.

This is not the hope of only small- and mid-size companies, however. Hyundai Mobis, the country`s top maker of car parts, faces a stumbling block in implementing its business plan for next year.

A Hyundai Mobis source said, "With the global economic downturn and the delay in the effectuation of the free trade agreement between Korea and the U.S. coming together, uncertainty in the business environment is growing," adding, "Whether the 2.5-percent tariff will be added will affect sales and production volume. We`re closely watching the situation."

Car parts will be one sector expected to greatly benefit from the accord. The Korea Trade-Investment Promotion Agency said brake pads, cold forging parts and bolts and nuts will be among the 10 most promising export items made by smaller companies under the agreement.

With parliamentary approval of the pact facing a rough going, however, the hope of the car pats sector is turning into disappointment.

The Korea Automobile Manufacturers Association said, "As ratification of the agreement is delayed, the signing of new contracts is also. This is the problem," adding, "In addition, those who expanded facilities ahead of the effectuation of the pact are under heavy financial pressure."

Moreover, certain small- and mid-size companies have spent tens of thousands to hundreds of thousands of dollars to introduce a system to verify places of origin required to remove tariffs under the agreement. Therefore, they badly need ratification to retrieve their investment.

○ Opportunity to expand overseas markets

The car parts industry forecasts that tariff elimination will expand exports to the U.S. to 30 billion dollars. Last year, Korea exported 19 billion dollars worth of car parts to the U.S., and the figure is expected to grow to 23 billion dollars this year.

The U.S. market for cold forging products such as pistons and shafts is worth 18.15 billion dollars, of which Korea occupies a meager 8 percent.

A source from the car manufacturer association said, "If high-quality Korean products have price competitiveness, our market share will easily exceed 10 percent," adding, "If we can supply parts for new cars produced in the U.S., we can also keep selling parts for repairs."

Advancing into the U.S. market will reduce dependence on Korean carmakers, another big advantage for small- and mid-size car parts companies in Korea.

Yoo Ji-soo, a business professor at Kookmin University in Seoul, said, "If the agreement takes effect, car parts makers expected to get more orders from American companies will expand their production bases in Korea," adding, "This will naturally generate huge economic benefits by creating jobs and invigorating provincial economies. Therefore, ratification of the free trade agreement is urgently needed."

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