South Korea to Increase Vehicle Exports to Mexico through an FTA

Mexico and South Korea have started negotiations for a free trade agreement (FTA). While South Korea aims to prioritize the automotive sector, this arrangement might not benefit Mexican automotive manufacturers, warns Mexico’s National Auto parts Industry (INA) association.

South Korea is Mexico’s sixth most important trade partner, while Mexico is the Asian country’s main trade partner in Latin America. In 2018, both countries traded a total of US$20.87 billion, according to the Ministry of Economy. Both countries have been commercial and economic allies for 60 years and plan to sign an FTA to promote investment, exchange technology and give continuity to economic and diplomatic relations.

Formal trade negotiations are expected to happen in the following months. The FTA will encourage supply chain resilience, climate sustainability and digital transformation. “This FTA push will be a new game-changer for the two countries’ economic ties,” said South Korean Trade Minister Yeo Han-koo.

Although the agreement could impact different industries, the Asian country is prioritizing the automotive sector. Mexico and South Korea have complementary trade structures. Mexico’s high tariff rates are expected to positively impact trade of South Korea’s automobiles and steel exports, according to South Korea’s Ministry of Trade, Industry and Energy.  In 2018 Mexico’s tariff for South Korea’s vehicles was 8 percent.

In Jan. 2022, South Korea increased its vehicle exports to the UK and Israel and its total exports amounted to US$3.92 billion, according to the Observatory of Economic Complexity (OEC). However, in 1Q2022, the Japan-Korea region saw its exports of light vehicles to the US decrease by 23.4 percent compared to 2021, according to INA. For that reason, an FTA with Mexico could revitalize South Korea’s trade in the Americas.

However, in Mexico, some in the automotive sector are not entirely convinced that an FTA would benefit the local industry. “On the Tier 1 level, we cannot sell to Korea because the 600 Tier 1s that are in Mexico are the same Tier 1 brands that are in South Korea,” said Alberto Bustamante, President, INA. The association is still evaluating possible opportunities for Tier 2 and Tier 3 companies.

“There are not many possibilities for the industrial sectors to export in the short or long term to South Korea. Its technological development, competitiveness and innovation ecosystems puts us at a disadvantage. The impact that it would have on Mexico’s trade balance is very small compared to the negative impact on industrial sectors,” said José Centeno, President, CANACINTRA.

However, the agrobusiness sector is eager for FTA negotiations to start. South Korea is one of the main agrobusiness markets for Mexico. “Having an FTA would provide preferential access such as the one that the US, Canada, EU and Chile have by having an FTA with South Korea,” said Juan Cortina, President, Mexico’s National Agricultural Council.