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

Table 3.16 Korean passenger vehicle market by engine size, 2005
Engine category Domestic Import
Percent No. of vehicles Percent No. of vehicles
1,000 cc and under 5 45,678 0 0
1,001 cc–1,600 cc 17 155,303 2 618
1,601 cc–2,000 cc 54 493,317 21 6,489
Over 2,000 cc 24 219,252 77 23,794
Total 100 913,550 100 30,901
Source: Commission staff calculations based on Korean Automobile Manufacturers Association and Automotive
Trade Policy Council, as reported in Ford Motor Company posthearing statement.
Note: Data for engine categories 1,001–1,600 cc and 1,601–2,000 cc estimated by Automotive Trade Policy
Council based on data for 1,001–1,500 cc and 1,501–2,000 cc.
A broad spectrum of taxes are assessed on all passenger vehicles, imports and domestically
produced vehicles alike, and are assessed in a cascading manner, beginning with the import
tariff (in the case of imports). Purchase taxes are applied next, and include the special
consumption tax based on engine size, the educational tax that is a percentage of the special
excise tax, value-added tax (VAT), registration tax, acquisition tax, and the subway bond;
the bond is also based on engine size. Ownership taxes include an annual vehicle tax that is
based on engine size and an annual educational tax that is based on the annual vehicle tax.
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 Koreanbuilt
and an imported vehicle, both with engines over 2,000 cc and a price of $30,000, 441
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. 442
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,” 443 and characterize them as elaborately layered, everchanging,
444 and “often nontransparent and out of sync with international standards.” 445
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. 446
Moreover, standards are subject to revisions as new models are introduced. 447
The effect of these NTMs may be to restrict the quantity of imports or raise the price of
imports for passenger cars (box 3.3). According to Jeffrey Schott of the Peterson Institute
for International Economics, “A large segment of the Korean market is taken by small engine
vehicles, not the mainstay of major US producers...[t]hat said, the low import penetration of
441 Ex factory + insurance and freight.
442 Import, purchase, and first-year ownership, less insurance, freight, and dealer markup. Based on
calculations of the U.S. Department of Commerce.
443 Biegun, testimony before the USITC, June 20, 2007, 240.
444 Ibid.
445 Ibid.
446 Ibid., 210–11.
447 Meyer, testimony before the USITC, June 20, 2007, 238.
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