[News Focus] Central American FTA to increase Korean exports

The latest free trade deal between South Korea and Central America is projected to boost Korean exports of cars, steel, cosmetics as well as lower the prices of coffee and tropical fruit imports here.

The Korean government Wednesday reached an agreement with six Central American countries -- Nicaragua, El Salvador, Honduras, Costa Rica, Panama and Guatemala -- to remove tariffs on over 95 percent of goods made from each country, either immediately or within 10 years. Five countries agreed on 24 sectors, while Guatemala excluded some of them, citing market sensitivity.

This is the first case of the six Central American countries concluding a free trade pact with an Asian country. The negotiations took 1 1/2 years.

Central America pledged to open their markets to Korean automobiles, steel, synthetic resins cosmetics, pharmaceuticals and textiles. Costa Rica vowed to immediately eliminate tariffs for vehicles, automotive parts and cosmetics.

Korean carmakers are expected to benefit from the deal as the Central American countries do not manufacture cars and solely depend on imports.

As of this year, the car market of the six countries amounted to 178,000 vehicles, with Korean carmakers making up 28 percent. Currently, El Salvador levies up to 30 percent of import duties on Korean cars.

“Once the deal takes effect, the price competitiveness of the Korean vehicles will likely improve amid the competition with Japan,” said Korean Trade Ministry officials.

Korean construction and energy firms are also projected to have more business opportunities as their counterparts also vowed to open a government procurement project market worth 15 trillion won ($12.7 billion) to allow Korean companies to join energy, infrastructure and construction projects.

In return, Korea said it would immediately remove import duties for coffee and raw sugar, which would lower coffee prices here. It will also gradually cut the current 30 percent tariff for bananas and mangoes within five and seven years, respectively. The Central American continent is the top pineapple producer and the second-largest banana producer in the world.

To minimize the possible negative impact on Korean agriculture, the Seoul government excluded sensitive agricultural products from the agreement, such as rice, garlics and onions. It also vowed to gradually cut the import duties of beef and pork in the long run, for at least 10 years, the ministry said.

The trade volume between Korea and the six countries totaled $4 billion last year while the gross domestic product of the six countries amounted to $197 billion as of 2013.

These markets have become crucial for Korea as they are considered promising export regions. World Bank projected that the economic growth rate of these areas would reach 4 percent this year.

The ministry forecasted that the new free trade agreement would amount to $1 billion of additional exports.

“It is a comprehensive deal that ranges from goods, services and investment to intellectual property. (Korea) will work to make strategic cooperative ties by sharing Korean economic development experiences and providing market-entering opportunities for Korean companies,” said Seoul officials from the Ministry of Industry, Trade and Energy.

“The new deal is meaningful as it brought a new export route amid growing uncertainty in the wake of the new administration elected in the US,” they added.

As part of moves to expand Hallyu and protect distribution rights, the two parties also came up with a scheme that would protect the intellectual property of Korean digital content.

The free trade agreement is projected to take effect late next year, with the official signing taking place early next year. The agreement requires parliamentary approval in Korea and more than one of the six Central American countries.



By Lee Hyun-jeong (rene@heraldcorp.com)