A Hyundai Motor Co. dealership in a London suburb
The free trade agreement implemented Friday between South Korea and the European Union is expected to boost the competitiveness of South Korean corporations in the EU market, making them an even greater threat to their Japanese rivals.
The FTA will reduce tariffs on industrial products to zero within five to seven years.
South Korea's advantage contrasts starkly to Japan's lack of progress in concluding an economic partnership agreement with the EU. This country only recently agreed to begin preliminary negotiations with the EU on the issue. Industrial circles in Japan now have even more reason to press the government to make headway in EPA talks with the EU.
The EU's gross domestic product totals about 16.3 trillion dollars (about 1.3 yen quadrillion), accounting for a quarter of the world's total and about 16 times South Korea's GDP.
A South Korean government-affiliated research institute estimated the country's FTA with the EU will increase its real GDP by up to 5.6 percent.
South Korea's automobile industry is expected to see remarkable benefits. As the EU's 10 percent tariff on car imports from South Korea will be abolished, the country's automobile exports are expected to grow 1.41 billion dollars (about 114 billion yen) a year.
Japanese automakers have been wary of this prospect for some time.
According to the European Automobile Manufacturers' Association, South Korea's Hyundai Kia Automotive Group sold 605,400 units in Europe in 2010, surpassing Toyota Motor Corp.'s 567,300.
South Korean cars are about 15 percent cheaper than the equivalent Japanese models , and have been selling well mainly in Eastern Europe, Japanese car industry experts said.
Economists predict that South Korean companies will take advantage of the tariff abolishment to cut prices, expand sales networks and secure talented human resources.
It is inevitable that Japanese companies will be put at a disadvantage compared with their South Korean rivals.
Japanese companies aim to emphasize such advantages of their products as green technologies and high quality. Even so, Naoya Taniguchi, chairman of Toyota's British unit, said, "The gap in competition now exceeds anything we can overcome by our own efforts."
South Korean companies' price advantage will not be limited to cars. They will also have the edge in such products as high-performance digital home electric appliances and batteries.
Unless the Japanese government accelerates the EPA talks with the EU and signs an agreement, a trade policy source said, "Japanese companies will have only two choices: expand local production or withdraw from the European markets."
The new FTA may also hurt Japanese firms in the South Korean market. The agreement may enable European corporations to take a lion's share of the South Korean domestic market in industrial machinery and chemical products, both fields that Japanese companies have long dominated.
Also on Friday, Finance Minister Yoshihiko Noda and South Korean Strategy and Finance Minister Bahk Jae Wan confirmed the two countries will continue efforts to resume talks on a bilateral FTA.
Noda and Bahk held a meeting in the Finance Ministry in Tokyo as part of the fourth Japan-South Korean economic talks by finance authorities.
The talks on a Japan-South Korea FTA have been suspended since the sixth meeting held in November 2004, but the two governments have continued working-level negotiations to resume the talks.
The two ministers agreed the bilateral FTA would strengthen ties between their countries and contribute to the integration of East Asian economies.
(Jul. 4, 2011)
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