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

vehicles that receive a tax break in the agreement are those over 2,000 cc, as the new rate to
be applied at implementation does not change for vehicles with engines between 1,601 and
2,000 cc. (The small percentage of vehicles between 801 and 1,000 cc also receive a tax cut,
but there are no imports in this category.) The FTA does not reduce or restructure the
subway bond, which is also based on engine size.
The effect on U.S. exports of passenger vehicles of Korea’s commitments on TBTs is also
expected to be positive but likely minimal. These commitments are also applied on an MFN
basis. The FTA addresses the Korean standards that were identified by U.S. automakers as
priority issues (ultralow emission vehicle standards, onboard diagnostic standards, and selfcertification),
and Ford conceded that “there is some convergence to the U.S. standards.” 455
The overall Korean system, however, remains unique and continues to combine U.S. and
European safety and emission standards. 456 On the priority issues, U.S. industry believes that
the trade-distorting effect of the K-ULEV regulation is removed in the FTA. 457 The FTA did
not eliminate the Korean OBD II regulation, but instead offers a short-term exemption from
meeting the standard for low-volume importers. Additionally, as it stands, the OBD II
regulation, although consistent with California regulations, may require U.S. automakers to
incur significant additional costs in terms of vehicle prototypes, documentation, and other
demonstration requirements. 458 Finally, on self-certification, 459 U.S. officials assert that, for
U.S. manufacturers exporting no more than 6,500 vehicles, U.S. safety-certified vehicles
would be accepted as meeting all Korean safety regulations. 460 As elaborated on in the Views
of Interested Parties section, because of the highly technical nature of the TBTs, U.S.
industry believes that the FTA text still requires clarification.
Further, the low-volume seller exemptions established for two TBTs in the FTA may act as
a disincentive for U.S. automakers to pursue vehicle sales above these levels. 461 According
to an official with Ford, to build a vehicle to a uniquely Korean emission standard would
require sales in the tens of thousands to make sense from a business perspective. 462 If
automakers manufacturing in the United States did reach and limit their exports to the lowest
low-volume seller exemption threshold, which is the exemption from K-ULEV for importers
selling up to 4,500 vehicles in Korea, it could represent a significant increase in the volume
of U.S. exports to Korea; the agreement, however, does not specify how a “manufacturer”
is defined; e.g., whether foreign affiliates are included in a parent company’s total.
Nonetheless, U.S. exports would still likely account for a very small portion of total Korean
sales.
Additionally, the FTA states that Korea would not adopt new technical regulations that
“create unnecessary barriers to trade” and to work with the United States on harmonizing
standards. As noted earlier, however, the introduction of each new model of vehicle can
create a situation in which subjective decisions are made that can result in loss of market
455 Biegun, testimony before the USITC, June 20, 2007, 239.
456 ITAC (2) on Automotive Equipment and Capital Goods, Advisory Committee Report, April 27, 2007.
457 Ibid.
458 Ibid.
459 Self-certification is the way by which the manufacturer certifies that each product put on the market
conforms to given regulations; the competent administrative authorities may verify by random sampling on
the market that the self-certified products comply with the requirements of given regulations.
460 ITAC (2) on Automotive Equipment and Capital Goods, Advisory Committee Report, April 27, 2007.
461 Congressman Levin, “Testimony as Prepared for Delivery,” written submission to the USITC,
June 20, 2007; and Biegun, “United States International Trade Commission's Hearing” written submission to
the USITC, June 20, 2007.
462 Biegun, testimony before the USITC, June 20, 2007, 241.
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