Korea’s additional concession in automobile trade regulations in its free trade agreement with the US is expected to have a limited impact on domestic carmakers, industry sources told the Korea Herald.
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The two countries on Friday reached an agreement over the Korea-US Free Trade Agreement that had been stagnating for more than three years without being implemented.
The apparently one-sided concessions made on automotive issues are raising concerns that the local industry has been sacrificed by the government in its haste to hammer out a deal.
Last week’s negotiations led to the addition of safeguard clause which allows either side to reinstate the tariffs on fully assembled vehicles if import surge as a direct result of removing the tariffs.
The safeguard can be implemented within the first 10 years after tariffs are removed and can remain in place for two years with a possibility of a two-year extension.
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By GlobalDataUnder the modified trade pact Korea will halve the tariffs placed on US-made vehicles immediately after ratification and remove them entirely after four years.
The US will maintain its tariff on Korean-made vehicles at 2.5% for four years.
The two sides agreed that the US will continue to place 25% tariffs on commercial vehicles for seven years after the deal is implemented and then remove tariffs over a period of two years.
Seoul will also exempt US carmakers that sell less than 25,000 vehicles in Korea per year from meeting local safety standards provided that they comply with US regulations.
Under the previous agreement, the exemption applied to carmakers with less than 6,500 unit annual sales volume.
In addition, Korea will lower its carbon dioxide emission standards by 19% for US carmakers that sell less than 4,500 units on the local market.
While the safeguard clause has been deemed disadvantageous to local carmakers, trade minister Kim said it is a tool for protecting each nation’s auto industry and that there is no precedent of similar measures being implemented anywhere in the world.
Kim also projects that maintaining tariffs on Korean-made vehicles will have “very limited” effect on their US sales as local carmakers’ sales in the US have been increasing in recent years despite their being subjected to import taxes.
As local carmakers have expanded their overseas production networks in recent years, changes made to the trade agreement may not have significant effects on their US sales.
US local production figures are equivalent to about 56% and 36%, respectively, of Hyundai and Kia’s sales in that country.
With both plants capable of producing 300,000 units per year each, the two Korean carmakers still have room to increase the proportion of their US sales accounted for by vehicles produced within the country.
With the country’s two largest carmakers, which account for more than 70% of Korea’s automobile exports, setting up production facilities in the US, Korean carmakers’ sales in the US accounted for by overseas-produced vehicles have increased rapidly in recent years.
In 2008, 71.6% of Korean vehicles sold in the US were shipped from Korea but the figure is projected to fall to 52.6% for this year as carmakers increase output from their US facilities.
