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

cheaper in the US market, helping offset recent pricing pressure from currency
appreciation.” 469
Two product areas that are addressed in the FTA, but for which there is currently no Korean
production, are hybrid vehicles and pickup trucks. The United States committed to
eliminating immediately the 2.5 percent tariff on the current generation of hybrid vehicles. 470
Hyundai announced in April 2007 that it plans to start mass production of hybrid cars in
2009 and build up to a capacity of 300,000 units per year by 2015. 471 More recently, a KIET
report stated that mass production is unlikely before 2010, but that production could reach
500,000 vehicles by 2015, and 1.8 million by 2020. 472 These vehicles are expected to benefit
from an immediate removal of the 2.5 percent tariff, which would increase the
competitiveness of such products in the U.S. market.
An increase in U.S. imports of pickup trucks from Korea would not be likely in the initial
years of the agreement because of the 10-year phaseout of the 25 percent tariff, and because
Korean automakers do not presently have a model ready for the U.S. market. The Korean
press reported that Korea’s chief negotiator predicts that Korean pickups would be selling
in the United States in about 5 years. 473 Hyundai announced in early April that it would begin
a feasibility study on moving into pickup truck assembly, 474 and according to a company
spokesman, it would be at least 5 years until the company has a pickup truck ready for the
U.S. market. 475 A recent report in the trade press, however, quotes a Kia official as stating
that “neither Hyundai nor Kia is considering a pickup truck. A truck is absolutely off the
radar screen.” 476 Kia introduced a U.S.-styled-concept pickup truck in 2004 that it continues
to evaluate; Ssangyong, 477 which manufactures in Korea and exports to Europe and Australia
a pickup truck called Actyon Sports, reportedly may consider introducing the truck to the
U.S. market in 2011. 478 Although some observers note that other foreign automakers could
locate motor vehicle—and in particular, pickup truck—production in Korea to take
advantage of the elimination of U.S. tariffs, 479 U.S. industry officials state that such
investment would be more likely to take the form of a joint venture or acquisition of a
Korean automaker, rather than a greenfield investment. 480
Current trends that will likely bear upon the level of U.S. passenger vehicle imports from
Korea in the short to medium term include the forecast for Korean brand vehicles to continue
469 Lam, “Korea: Opening Up for Growth,” April 3, 2007. Additionally, Jeffrey Schott notes that “Korean
exporters have had to price aggressively in the U.S. market to compete with Japanese-made cars to
compensate for currency movements...while the swing in the won/dollar and yen/dollar rates swamps the
impact of tariff reforms, the immediate 2.5 percent tariff reduction does provide a small cushion for Korean
exporters in a highly competitive market.” Schott, “The Korea-US Free Trade Agreement,” August 2007, 4.
470 Those in which the gas- or diesel-powered engine gives “the vehicle’s power system its essential
character.” The 2.5 percent tariff on future hybrid vehicles—those in which the spark-ignition internalcombustion
reciprocating piston engine or compression-ignition internal-combustion piston engine does not
give the vehicle's power system its essential character, and other alternatively powered vehicles, would be
phased out over 10 years.
471 Yahoo! Asia News, “FTA to Help Boost Competitiveness of US-Built Japanese Cars,” April 4, 2007.
472 Jin, “Korea Urged to Invest More in Hybrid Cars.”
473 Thorpe, “Will Koreans Ship Cheap Pickups Here?” April 9, 2007, 1.
474 Associated Press, “Automakers hopeful on South Korea-US FTA,” April 8, 2007.
475 Thorpe, “Will Koreans Ship Cheap Pickups Here?” April 9, 2007, 1.
476 Jackson, “Hyundai Goes UpMarket,” August 13, 2007.
477 Ssangyong is 51 percent owned by Shanghai Automotive Industry Corp. of China.
478 Thorpe, “Will Koreans Ship Cheap Pickups Here?,” April 9, 2007, 1.
479 Reuther, “Statement by Alan Reuther, . . . on the Subject of The United States-Korea Free Trade
Negotiations Before the Subcommittee on Trade, CWM, U.S. House of Representatives,” March 20, 2007.
480 Biegun, testimony before the USITC, June 20, 2007, 250.
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