Korean automakers are paying a lot of attention to the conclusion of the Japan-led Trans-Pacific Partnership (TPP) devoid of the United States.
Although there will be no big immediate impact from the trade agreement as the US, the largest market in the world, did not join the partnership, the deal may become another bad factor to Korean companies that compete fiercely with Japanese companies in Latin America and Southeast Asia, including Mexico and Vietnam.
According to the automobile industry on November 15, it was forecast that Japan, the biggest competitor of the Korean automobile industry, is expected to take an advantage in the global market through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) concluded on November 11.
Although the US withdrew from the partnership, the TPP still includes 11 countries which account for 12.9% of the world’s GDP and 14.9% of the world’s trade volume. The 11 are Japan, Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
These countries agreed in principle to immediately abolish tariffs on industrial products such as auto parts, and decided to put the TPP in effect in the first half of 2019.
Canada will immediately remove 6% tariffs on most parts including parts for car air conditioners and brakes, bodywork and transmissions. Mexico and New Zealand will immediately abolish five-percent tariffs on engines and will phase out tariffs on others over the next five years.
Vietnam, which imposed a maximum 27% tariff on transmissions and clutches, will immediately abolish a 3% tariff on some parts for large engines and parts for air-conditioners and phase out the rest in four to 11 years.
Japan is planning to strengthen its economic position in the Asia-Pacific region through the TPP. In particular, the company expects to gain an upper hand in automobile exports.
Japan and Vietnam signed an economic partnership agreement (EPA) but they still have certain tariffs on finished cars and auto parts. However, once the TPP comes into effect, parts produced in Japan will be exempt from tariffs in Vietnam if the parts go into cars produced in Vietnam. Automakers with production facilities in Canada including Toyota and Honda, will also benefit from the partnership.
Korean automakers are concerned that the TPP will relatively cause damage to them as the TPP will increase the competitiveness of Japan which has high export similarity.
"As Korea has also concluded agreements to reduce tariffs with many countries, it is not expected that the TPP will directly affect and hit Korea hard right away," an automobile industry official said. “However, Korea cannot welcome the conclusion of the agreement as the partnership means the formation of an economic order led by Japan.”
"In particular, Mexico and Vietnam among others are big players in the global market and we are competing with Japan," The official added. “If Japan obtains benefits from the deal, competition between Korea and Japan will intensify and the deal will definitely have a negative impact on Korean companies."