▶주메뉴 바로가기

▶본문 바로가기

The Korea Herald
검색폼

THE INVESTOR
March 28, 2024

Automobiles

US-Mexico NAFTA fueling concerns of Korean cars being slapped with steep tariffs

  • PUBLISHED :September 02, 2018 - 11:28
  • UPDATED :September 02, 2018 - 12:27
  • 폰트작게
  • 폰트크게
  • facebook
  • sms
  • print

[THE INVESTOR] The agreement between the United States and Mexico to rewrite the existing North American Free Trade Agreement (NAFTA) could lead to Korean cars being slapped with stiff tariffs, analysts in Seoul said on Sept. 2.

The agreement, while easing market concerns that can be triggered by a breakup in talks, has effectively outlined Washington‘s willingness to use its Section 232 of the Trade Expansion Act to curb foreign vehicle imports on national security grounds.

Under the free trade agreement (FTA) pact being reported by the media, the two North American countries agreed to raise the proportion of car parts that must be made in the region from 62.5 percent at present to 75 percent. In addition 40-45 percent of all parts used must be made by workers making more that US$16 per hour, which will naturally lead to a rise in costs for companies assembling vehicles in Mexico compared with the past.

Trade experts said that if the cost of making cars in Mexico exceeds the 2.5 percent tariffs that the US levies on all imported cars, then vehicle manufacturers will simply opt to not make cars there, although even this move does not mean carmakers in Europe, Japan and South Korea will not be affected.




In addition, the latest deal is seen as a sign that the US may actually utilize the rarely used trade action to limit imports that can really hurt countries like South Korea.

“The US-Mexico deal can be a sign that Washington is moving to slap hefty 25 percent duties on imported vehicles,” said Ahn Duk-geun, a professor of International Trade Law and Policy at Seoul National University’s Graduate School of International Studies.

In particular, trade experts said that a glimpse of the revised pact does not mean a country that even has an FTA with the United States will be given a free pass. Seoul had accepted calls for a change to the open trade pact with policymakers here claiming the new arrangement, which reflected worries expressed by the US, will protect the country from future changes to Washington‘s trading rules.

On the other hand, the US said that it will levy tariffs on Mexican-made cars exceeding 2.4 million units per year or if the sum of vehicles shipped tops the $90 billion mark. This move can be seen as the world’s largest economy implementing a tariff rate quota (TRQ) on imports that can restrict trade.

“If the US is actually moving to implement the TRQ regime on cars, this can impact South Korea as well, allowing Washington to gain more leverage in future negotiations,” said Heo Yoon, a professor of international trade at Sogang University in Seoul.

Related to the bilateral agreement, the South Korean government said it‘s not totally ruling out the possibility of the TRQ being implemented, with officials scrambling to determine the exact wording of the deal.

“Both sides have yet to officially release the agreement so it is too early to make conclusions at this juncture,” a trade ministry official said.

By Park Ga-young and newswires (gypark@heraldcorp.com)

EDITOR'S PICKS