U.S.-Korea Free Trade Agreement: Potential Economy-wide ... - USITC

Passenger Vehicles 433
Assessment
U.S. exports of passenger vehicles to Korea would likely experience a large percentage
increase as a result of the FTA; however, given the current very small U.S. market share and
regulatory measures in place, short- to medium-term increases would likely be small (by
value). The long-term impact on U.S. exports of passenger vehicles to Korea depends on the
implementation of FTA provisions addressing NTMs, including burdensome standards and
certification requirements, taxes, and an opaque regulatory environment. Addressing
nontariff issues could increase U.S. exports of passenger vehicles, whereas shortfalls in their
elimination could reduce the estimated impact. The increase in U.S. imports of passenger
vehicles from Korea will likely be small in percentage terms, because of the current
relatively low U.S. tariff and the large pre-existing trade value of passenger vehicles in total
U.S. imports from Korea, but large in value terms.
U.S. Exports 434
Elimination of Korea’s 8 percent tariff on U.S. passenger cars and 10 percent tariff on U.S.
light trucks would likely lead to increased U.S. passenger vehicle exports. Further, Korean
commitments on TBTs and taxes would likely modestly enhance the potential for increased
U.S. exports to Korea. 435
Current Environment
The passenger vehicle market in Korea is dominated by the domestic industry, which
accounted for over 95 percent of the Korean market during the 2002–06 period (table 3.15).
Penetration by foreign automakers was 4.2 percent in 2006. Passenger vehicles from Europe
accounted for the largest share of total Korean passenger vehicle imports in 2006
(60 percent), imports from Japan accounted for 27 percent, and imports from the United
States accounted for just 7 percent. 436 Observers note that the 1995 and 1998 memoranda of
understanding (MOUs) between the United States and Korea, the stated goals of which were
to increase market access and address nontariff barriers in the Korean market, did not result
in increased sales of U.S.-built vehicles. Instead, as calculated by the Automotive Trade
Policy Council, the U.S.-Korea automotive trade deficit increased from $1.3 billion in 1995,
to $2.1 billion in 1998, and to $11.1 billion in 2006. 437
433 The quantitative analysis in this section is based on GTAP sector 38, Motor Vehicles and Parts. The
qualitative analysis herein focuses on the subset of passenger cars and light trucks, or passenger vehicles.
Other GTAP sector 38 products include automotive parts and engines, commercial trucks, buses, specialty
vehicles, and certain containers and trailers.
434 The products covered in this assessment represented approximately 21 percent of U.S. exports in the
GTAP “motor vehicles and parts” sector in 2006.
435 Korea's Ministry of Commerce, Industry, and Energy and the Korean Institute for Industrial Economics
and Trade (KIET) both estimated that U.S. vehicle exports to Korea will increase by $72 million. Yonhap
News, “FTA to Boost S. Korea's Auto-related Surplus by US$1 billion,” April 11, 2007; and Yonhap News,
“Economic Effects of S. Korea-U.S. FTA May Differ From Early Estimates,” April 23, 2007.
436 Commission staff estimates based on Global Trade Information Services, World Trade Atlas database.
437 Biegun, written submission to the USITC, June 27, 2007.
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