The Prospective Effects of the Free Trade Agreement between Colombia and South Korea on the Colombian Automotive Sector

This paper evaluates the effects of the Free Trade Agreement (FTA) between Colombia and South Korea on the Colombian automotive sector and assesses some likely short and medium-term prospective effects. Results were drawn using a mixed methodology, including interviews, literature review, reports from the Colombian Association of Automotive Vehicles, and Trademap analysis. Between the negotiations of the FTA in 2009 and coming into effect in 2016, relevant programs were developed to support the preparation of the Colombian automotive sector for the enhancement of its competitiveness in view of the market liberalization for Korean automotive goods. Within current period (2016/17) there were important effects for the auto parts industry and the final vehicles. The auto parts industry was affected in some products, but the overall results show that it happened because of business cycles rather than due to the FTA. The vehicles industry has not experienced an increase in the Korean manufacturers’ market share in Colombia; however, after-sales services have improved, thus reflecting what is likely to be the strategy of the Korean companies on the national market. Based on the current state of the sector, the short-term effects (2017-2024) are the adjustment of the Korean and Colombian companies on a yearly basis, and a possible increase of Korean companies’ sales. On the medium-term prospective effects (2024-2036), the tariffs will be eliminated; and the sum of various positive and negative FTAs for the national industry will create equilibrium market prices without jeopardizing the Colombian automotive industries. This paper will contribute to the understanding of the FTA between Colombia and South Korea in the automotive sector, the relations that this process has with GVCs, economic equilibrium, the liberal economic system and the effects that derive from these factors. It will be useful for the public and private sector, as well as for the academia