Korea hints at FTA trade-off
Korea Times | 25 December 2006
Korea Hints at FTA Trade-off
By Park Hyong-ki
Staff Reporter
Korea is giving hints that it is ready for a big deal'' with the United States, as part of efforts to establish a free trade agreement (FTA).
This comes after Kim Jong-hoon, Korea's chief FTA negotiator, mentioned on a local radio program that his team is looking to concede to a U.S. demand for Korea to eliminate or revise its automobile tariffs on American import vehicles, in return for the U.S. to ease its trade restrictions, including anti-dumping and countervailing duties, on Korean goods.
Korea currently slaps an 8 percent tax on all inbound cars, while the U.S. applies a 2.5 percent tariff on regular size cars and 25 percent on pick-up trucks.
If Korea agrees to lift its auto tariff barriers, experts agree that Korean automobiles will still gain a greater advantage than U.S. cars, as domestic consumers favor Korean automobiles much more than American cars.
The Presidential Committee on Facilitating the KORUS FTA said that the prices of American cars will only drop 7.4 percent in Korea if the 8 percent tariff is abolished.
Although this price drop will definitely increase sales of GM, Ford and Chrysler in the country, their market share in Korea will only be a mere 0.7 percent or about 8,900 units by 2015, after an FTA is signed.
In the meantime, Korean vehicles will see their prices drop by 2.4 percent in the U.S., raising their sales as well.
Its auto market share in the U.S. is expected to grow to about 7 percent or 1.16 million units by 2015, from 4.3 percent in 2006. It will also have the chance to tap into the U.S. truck market that scales to about 3.2 million, the committee said.
Korea has been holding back to manufacture and ship trucks to the U.S. due to its high taxation.
The committee ruled out possible imports of Japanese made vehicles produced in the U.S. as U.S.-made automobiles to Korea, as both countries recognizes the value of place of origin.
An FTA with the U.S. will also boost Korean auto parts exports to the U.S. and their competitiveness, as its automakers and Korean automakers in the U.S. increasingly rely on global parts for production.
Officials claim that if Korea also agrees to revise its auto tax system that is based on engine size rather than price, Korean cars will also be able to maintain their competitive edge, as American cars are generally priced higher.I’m aware that our auto industry is not totally against revising the nation’s tax system,’’ said Kim.
If the big deal occurs, Korea will enjoy overall exports to the U.S. under the easement of U.S. antidumping and countervailing rules.
