Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
Kia, GS Caltex fear collapse of NAFTA
By Park Jae-hyuk
U.S. President Donald Trump’s recent declaration of renegotiating the North American Free Trade Agreement (NAFTA) seems to be dealing a severe blow to Korean firms that established factories and refineries in Mexico to benefit from the country’s low customs duties with the U.S.
Industry officials said Wednesday that Kia Motors, GS Caltex and other Korean firms which have manufacturing plants in the Latin American country are mulling over countermeasures against all possible results.
“We’ve heard that the renegotiation of NAFTA has yet to get underway,” an official of Kia said. “So we will wait and see the result of the renegotiation.”
Since last May, the nation’s second largest automaker has been operating a car manufacturing plant in Mexico, where about 1 trillion won ($858 million) has been invested. The plant annually produces 200,000 vehicles. About 70 percent of its production is built to export to the U.S. and Canada.
However, the company would not meet its expectations if the 30 percent tariff pledged by Trump during his campaign, becomes real. In addition, the automaker’s troubles are expected to negatively affect its myriad suppliers there as well.
GS Caltex, for example, built a factory in Mexico last September to provide Kia and other global carmakers with interior materials for their vehicles. The oil refiner planned to operate the factory expecting to annually yield 30,000 tons of products in the first quarter of this year.
“We will supply our products to other global carmakers and home electronics makers,” a GS Caltex official said. “Also, we are considering diversifying our production lines to produce higher values with higher technologies.”
Hanwha Advanced Materials, Hyosung, POSCO and Hyundai Mobis seem to be analyzing the current situation as well. In Mexico, the four companies are rolling out frame materials, raw material for airbags, galvanized steel sheets for cars and automotive modules, respectively.
Hyundai Motor, on the other hand, recently announced it will invest $3.1 billion in the U.S. It is also considering building another plant in the U.S.
According to the Korea Trade-Investment Promotion Agency, 183 Korean companies are operating in Mexico.
These firms are employing 34,000 local people and posting about $22 billion in annual sales on average, most of which is earned from exports to the U.S. Also, Korean firms are planning to invest about $45 million in Mexico through 2018, according to the data.
“Many worry about the aftermath of the NAFTA collapse. They would not be happy with the envisioned high tariffs of made-in-Mexico products toward the U.S. market,” said a Seoul analyst. “Many of them would be in big trouble if the tariffs are something like 30 percent.”