By Kim Young-gyo
HONG KONG, June 29 (Yonhap) -- A new trade pact signed between China and Taiwan Tuesday is expected to have a negative impact on South Korean exporters as many of them are competing against Taiwanese companies, experts said.
China and Taiwan agreed to eliminate tariffs on 539 items of Taiwanese goods worth US$13.83 billion. The so-called Economic Cooperation Framework Agreement (ECFA) covers services and investments as well as competition and other issues.
The agreement between the two sides that have been politically strained for 60 years will take effect after ratification by the Taiwanese legislature.
A Taiwanese scholar said that the preferential tariffs Taiwanese goods will enjoy will be beneficial to Taiwan's companies, but will undermine the price competitiveness of South Korean exports as they are subject to higher tariffs,
"With the signing of the ECFA, Taiwan and South Korea will enter a 'comprehensive war' era, as companies in both countries have aggressively been heading to the China market," said Chen Tianzhi, professor at National Taiwan University.
"Taiwan seemed to be losing at the starting point, but it has now grasped some advantages," Chen said.
Hu Zhongying, vice president of Taiwan's Council for Economic Planning and Development, echoed Chen's view.
"The ECFA will give Taiwanese companies a competitive edge over South Korean companies," Hu said. "I believe South Korea will have a strong reaction to our new trade deal."
Taiwan's display panel and automobile sectors, which are in direct competition with South Korea, are not included in the list of the items that will get tariff reductions or exemptions in the early stage.
However, market watchers expect more items will likely be put on the list in the future, giving a boost to Taiwanese businesses.
"Out of the top 20 items that South Korea exports to China, 14 items overlap with those of Taiwan," said the Korean International Trade Association (KITA) in a statement. "Those items make up 60 percent of South Korea's total exports to China."
The items include electronic circuits, semiconductor devices and liquid display devices.
The association urged the South Korea government to speed up its talks with China over a free trade agreement (FTA).
"In the long run, South Korea's competitiveness in Southeastern Asia might get affected if China and Taiwan enhances their economic integration," KITA said. "South Korea needs to strike a free trade agreement with China in order to maintain its presence in China."
In May, Seoul and Beijing concluded their nearly four-year-long joint study on the feasibility of an FTA between the countries.
The conclusion of the joint study, however, did not lead to an immediate launch of official negotiations for a trade deal as the countries only signed a memorandum of understanding to hold additional discussions on sensitive issues.
Meanwhile, South Korean conglomerates such as Samsung Electronics Co. and Hyundai Motor Co., which have production facilities within China, expect the negative impact of the ECFA on them will be minimal.
"Most of our products are manufactured and sold within China. We don't think we will have any disadvantages regarding tariffs," a Samsung official said.
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