The Hindu Business Line : `Korea-India FTA would be a desirable option'

Situated in Asia, where the market is growing fast, I think both countries are in a position to advance into the Asian market through such collaborations.

Mumbai , March 9

KOREAN companies have been among successful foreign investors in India. Despite setback at Daewoo Motor India, the Koreans led by Hyundai are today a force to reckon with in the country's automobile sector.

Last month this engagement between the growing Indian market and the Korean automobile industry matured further with Tata Motors acquiring Daewoo Commercial Vehicle.

Mr Dong-Wha Lee, Executive Director, Korea Automobile Manufacturers Association (KAMA), responded to questions sent by Business Line.

Excerpts from e-mail interview:

Almost nine years after the first Korean car was launched here, the first major Indian investment in Korea's automobile industry has occurred with Tata Motors acquiring Daewoo Commercial Vehicle. What do you feel about it?

The development of the Indian automobile industry driven by the country's economic growth is impressive and praiseworthy.

We, the Korean automobile industry, welcome Tata Motors' first ever investment in Korea to take over the financially troubled Daewoo Commercial Vehicle.

Being a leading Indian conglomerate, Tata's acquisition is perceived to offer a firm foothold for future industrial cooperation between the two countries, provides a momentum for balanced collaborations and makes a meaningful contribution to the growth of the automobile industry on either side.

Given the fact that Asia is today the global automobile industry's growth driver, what sort of relationship would you like to see between the automobile sectors of Korea and India? What are the potential areas of regional cooperation?

India is a fast growing market for automobiles with great potential for continued growth. It has fundamental strengths in labour and IT with good experience in automobile production and marketing.

On the other hand, Korea has technological know how, skilled labour, competitive suppliers and an extensive presence in the global market. Korean automobile companies have been managing successful businesses not just in India, but throughout the world, particularly in the US and Europe.

Based on their respective advantages, the Korean and Indian automobile sectors should be able to expand mutual cooperation in areas such as R&D, production, sales and joint entry into third markets.

Are there policy issues or initiatives that you would like to see addressed which can help grow the automotive ties between the two countries?

It is felt that bilateral or regional free trade agreements (FTAs) would have some positive or negative impact to the concerned parties, as well as third parties.

For example, the recently concluded India-Thailand FTA will favourably influence Japanese or US carmakers in India thanks to the duty free import of auto parts from their affiliated suppliers in Thailand while putting other assemblers such as Hyundai Motor India, who do not have procurements from Thailand, at a comparative disadvantage.

In this circumstance, a Korea-India FTA would be a desirable option for reducing the impact and strengthening industrial ties between the two countries.

Can you explain briefly the trade ties, from an automobile industry perspective, that exist between Korea and China? Is it possible to use Korea as a base to access the Chinese market?

The Chinese economy is projected to grow at 7-8 per cent annually in the coming years.

The purchasing power of China's middle class will therefore continue to support strong vehicle demand.

To expand their presence in China, Hyundai Motor and Kia Motor have set up assembly plants jointly with local partners and plan to expand capacity. GM Daewoo began assembling their cars in China through GM's local joint venture and the erstwhile Daewoo engine plant in Yantai may be bought by GM to manufacture engines there. Ssangyong Motor is in the process of selling out to a Chinese conglomerate, the Nanxing group.

Korea is a prospective production base for easy access to China, given its proximity and lower transport cost. Also, Korea and China have historical and cultural ties.

In this context, Tata Motors may find good opportunity to expand their future business to China.

Last year vehicle sales declined in Korea. What is KAMA's forecast for the Korean automobile industry?

For Korea's domestic vehicle sales, 2003 was the worst year since 1998. Sales fell by 18.7 per cent compared to 2002, mainly due to the slowdown of the Korean economy and mounting household debt, which significantly dampened vehicle demand.

In 2004, domestic sales are to rise by about 15 per cent to 1.5 million units, given our expectation of gradual economic recovery, better consumer confidence and government's steps to boost consumption.

However, Korean automobile exports in 2003 had a major role in supporting the economy, registering an increase of 15.2 per cent to over 1.8 million units. Exports should grow to around 1.9 million units this year.

Meanwhile, import sales of foreign automobiles grew rapidly in recent years. Despite sluggish domestic demand, import sales touched 20,470 units in 2003, up 19.6 per cent.

They are large, expensive cars with engine displacement exceeding 2000cc and in the over 3000cc segments, imported cars took nearly 30 per cent market share. Import car sales forecast is to be over 25,000 units this year.

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