Free trade with S Korea will impact Israeli car market

Hyundai i10 / Photo: PR

Almost every third car sold in Israel is from a South Korean manufacturer.

The free trade agreement between Israel and South Korea is in the final stages of preparation and could be signed within a few weeks. Discussions between the two countries on the agreement have been going on for several years, and the signing has apparently been delayed up to now because of political considerations.

Recently, however, the agreement was given a green light on the Korean side, among other things thanks to the normalization of relations between Israel and the United Arab Emirates, which rendered the agreement acceptable from the point of view of South Korea's trade relations with the Arab world.

Among the main beneficiaries from the agreement in Israel will be the car importers. It provides for the removal of the 7% duty imposed on vehicles imported from South Korea and on vehicles produced by Korean manufacturers in Europe that have a high proportion of components made in South Korea.

In recent years, almost every third car sold in Israel has been from a South Korean manufacturer. In the first half of 2020, Hyundai Motors and its Kia subsidiary took a 27% share of the Israeli new vehicle market. In addition, the Chevrolet Spark and one of Renault's models are also made in South Korea.

Imports of vehicles and vehicle parts account for almost half of Israel's total imports from South Korea. According to Israel Export Institute figures, in 2018, imports of vehicles and vehicle parts from South Korea were worth $778 million before taxes and accounted for 44% of all imports from that country.

It is not yet clear to what extent, if at all, the agreement will lead to a reduction in official consumer prices for vehicles in Israel imported from South Korea. Industry sources say that in similar circumstances in the past the vehicle manufacturers themselves tended to raise prices in order to benefit from the tax cut. Nevertheless, the sources say that the move will certainly substantially raise the competitiveness of the South Korean brands and their ability to give unofficial discounts, particularly in the fleets market.

It is not only importers of South Korean vehicles who will benefit from the trade agreement. Many makers of electric vehicles around the world use batteries produced by Korean firms such as LG Chem and SK. Since the battery is a key component of the cost of an electric vehicle, sometimes accounting for 60% of the total cost, Israeli importers of electric vehicles have to pay the 7% duty even if the vehicles are made outside South Korea. In the medium term, abolition of the duty could therefore give a competitive advantage to imported electric vehicles with South Korean batteries, such as those made by Volkswagen, General Motors, and Tesla, among others.

Vehicle importing industry sources said today that the signing of the agreement with South Korea would pave the way to the signing of a free trade agreement with Japan, which has also been discussed for many years, and even before that an agreement with China, which is at an advanced stage. If an agreement is signed with China, it will give a similar competitive push to imports of Chinese vehicles and of electric vehicles with Chinese-made batteries.

A Ministry of Foreign Affairs spokesperson said in response to an inquiry by "Globes" that there was still no final signing date set but that "the free trade agreement with South Korea is in the final stages of drafting and we hope that within a few weeks it will be possible to sign it." The spokesperson added, "Advanced talks on a free trade area are also taking place with China and Vietnam."

Published by Globes, Israel business news - - on September 8, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Hyundai i10 / Photo: PR
Hyundai i10 / Photo: PR
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