Fighting for American Industrial Renewal; Industry and Manufacturing Advocacy Group for public Education

     US trade with Korea

 

 In the American-style model the basic reason for having an economy is to raise the consumer's standard of living. In the Asian model it is to increase the collective national strength. Ideally, the goal is to make the nation independent and self-sufficient, so that it does not rely on outsiders for its survival. The American-style goal is materialistic; the Asian-style goal is political, and comes from long experience of being oppressed by people with stronger economies and technologies.

 

 - James Fallows

 

Japanese vehicles account for just 1.2% of the Korean market (2008). All imported cars made up just 4.3 percent of the overall Korean auto market in 2007. A total of only 27,985 cars were imported into Korea from all other countries. U.S. producers were only exported 6,500 vehicles to Korea. Korea is the fifth largest producer and fourth largest exporter of motor vehicles in the world. In 2007 Korea produced 4.1 million motor vehicles.  Korea exported 2.8 million motor vehicles to the rest of the world.

 
Market access for imported vehicles in Korea is affected generally by tariffs, taxes, and
TBTs that typically take the form of safety and emissions standards. Many observers also
assert that there is a persistent anti-import bias in Korea. The Korean import tariff of
8 percent for passenger cars and 10 percent for light trucks is relatively high, and the Korean
system of taxation for passenger vehicles has historically been based on engine size,
assessing higher tax rates for cars with larger engines. Nearly all U.S. passenger vehicle
exports to Korea have engines over 2,000 cc, and are therefore subject to the higher tax
rates.


Aside from assessing certain taxes based on engine size—a disadvantage for U.S. exporters whose strength is in larger engine cars—the cascading method of application magnifies the effect for imports and for cars with larger engines. For example, a comparison of a Korean built and an imported vehicle, BOTH with engines over 2,000 cc and a price of $30,000, results in a total tax amount paid by the purchaser/consumer for the imported vehicle that is 20–25 percent higher than for the Korean-built vehicle.


The extent to which safety and environmental standards affect market access is harder to assess in a quantifiable way. U.S. industry sources report that Korean standards “are unique to any other standards in the world,” and characterize them as elaborately layered, everchanging, and “often nontransparent and out of sync with international standards.”


Although these standards apply to all vehicles sold in the Korean market, Korean automakers
are able to amortize the cost of meeting such standards over a much broader sales base. Moreover, standards are subject to revisions as new models are introduced.The explanation is at least partly due to Korean tax and regulatory policies, the residual effects of prior anti-import campaigns, and technical standards.” Industry observers state that anti-import bias also plays a role in the low import penetration in the Korean market. Despite a commitment in the 1998 MOU between the United States and Korea to improve the perception of foreign motor vehicles in Korea, to address instances of anti-import activity against foreign motor vehicles, to end the use of tax audits and other measures to discourage the purchase of [foreign] motor vehicles*, and to promote the benefits of free and open competition between foreign and domestic products, U.S. industry reports that anti- import activities have continued “in a more subtle and indirect manner” and “continue to have a strong residual effect on consumers today.”

 

 

OFFICE OF THE UNITED STATES
TRADE REPRESENTATIVE
EXECUTIVE OFFICE OF THE PRESIDENT
WASHINGTON, D.C. 20506