From Smoke into Smother
A prediction has been made that the conclusion of a new trade agreement between the United States and Mexico will have a negative impact on the South Korean automotive industry and related sectors.
With the stance of the United States accepted in the trade agreement regarding labor provisions and the rules of origin relating to auto parts, South Korean auto parts exported to Mexico for manufacturing of automobiles to be exported to the U.S. are likely to take a direct hit.
According to the agreement, the ratio of auto parts made in the U.S. and Mexico to the total is required to be at least 75%, whereas the previous minimum requirement was 62%.
“The stricter rules of origin mean that procurement within the region should be increased,” the Korea International Trade Association explained, adding, “South Korean automakers will have to go through some adjustment in order to do so.” This means auto parts suppliers may have to be replaced with regard to automobile manufacturing in Mexico, and then some South Korean companies that have conducted bypass exports may be affected.
The labor provisions including wage-related matters are likely to result in an increase in product price. A rise in labor cost is likely to lead to an increase in overall cost.