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

Box 3.3. Potential price and quantity effects of NTMs on passenger cars, 1,500–3,000 cc engine
displacement (HS 870323)
Firms seeking to export passenger cars to Korea have identified TBTs, including burdensome standards,
testing, and certification requirements; special taxes; and an opaque regulatory environment that may have
impeded their access to the market for motor vehicles (see text). These measures may restrict the quantity of
imports into the Korean market, raise the price of imports, or both.
Korean imports of passenger cars with engine displacement of 1,500–3,000 cc, in quantity terms, are
substantially lower than imports of the same product into most other economies, relative to the size of the
Korean economy. Moreover, Korea's import unit value for small passenger cars is substantially higher than the
import unit value for most other countries. The existing tariff of 8 percent ad valorem appears to be too low to
account by itself for either the relatively low quantity of imports or the relatively high price of imports. This
relatively high price of imports may be reflective of the effects of NTMs, but could also be influenced by such
factors as market structure, product differentiation, and consumer preferences.
Korean imports of smaller displacement passenger cars (1,500–3,000 cc engine) in 2003–05 were 0.02
vehicles per million $ GDP, as compared to the median for 56 comparable countries of 0.45 vehicles per million
$ GDP. Korea ranks fifty-fifth out of the 56 countries in imports of these passenger vehicles relative to the size
of its economy, with only India ranking lower. The Korean average import price from the world in 2004–06 was
$27,160 per vehicle, which is 96.9 percent above the world average import price of $13,794; the average import
price from the United States was $19,754, which is 20 percent higher than the U.S. export price to the world
of $16,842.
Various provisions of the FTA are intended to address some of the NTMs affecting Korea’s market for
passenger cars, including provisions in Chapter 2 on National Treatment and Market Access for Goods,
Chapter 9 on Technical Barriers to Trade, the confirmation letter on specific-autos regulatory issues, and Annex
22-B of the chapter on Institutional Provisions and Dispute Settlement, concerning alternative procedures for
disputes concerning automotive products (see box 3.4 and chapter 5 of this report for additional information
on some of these provisions).
For further information on the calculation and interpretation of the quantity and unit-value information reported
above, see appendix J.
Source: See app. J for data sources; USITC staff analysis.
larger vehicles is still notable. The explanation is at least partly due to Korean tax and
regulatory policies, the residual effects of prior anti-import campaigns, and technical
standards.” 448
Industry observers state that anti-import bias also plays a role in the low import penetration
in the Korean market. 449 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 motor vehicles, and to promote the benefits of free
and open competition between foreign and domestic products, U.S. industry reports that anti-
448 Schott, “Autos and the KORUS FTA,” 2006.
449 USCIB, “USCIB Comments,” 4; Levin, “Statement of Senator Carl Levin”; Levin, testimony before
the USITC, June 20, 2007, 160-61; ATPC, “Statement of Stephen J. Collins”; Schott, “Autos and the
KORUS FTA,” 2006; Schott, Bradford, and Moll, “Negotiating the Korea-United States Free Trade
Agreement,” 9; UNEP, “Asia and Pacific Vehicle Standards and Fleets”; and VDA, Auto Annual Report
2007, 24.
3-77