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

provisions would allow Korean automakers to reduce costs without relocating overseas. 485
The decision to locate or expand passenger vehicle production in foreign markets, however,
is based on a number of factors other than preferential tariff rates on finished vehicles and
vehicle parts, including the volume of sales in the foreign market, exchange rates, transport
costs, the desire to design and produce vehicles locally to be more responsive to consumer
preferences, availability of parts and components, and political considerations.
Views of Interested Parties
In his testimony before the Commission, Mr. Stephen Biegun, vice president, International
Government Affairs of Ford Motor Co. expressed Ford’s opposition to the FTA. He noted
that Ford has been operating in Korea since 1995, and despite 12 years of investment and
effort, Ford currently has one remaining dealership in Korea and sells just 1,700 vehicles in
Korea each year, compared to approximately 1,400 Hyundai and Kia dealers. Mr. Biegun
stated that 96 percent of the vehicles sold in Korea are built in Korea, and that this “would
be impossible to sustain without the active intervention of the Korean government.” 486 Mr.
Biegun stated that the1995 and 1998 MOUs were intended to reduce NTBs and increase
market access, but were not successful. 487
With respect to safety and environmental regulations, Mr. Biegun stated that Korean
regulations are “nontransparent and out of sync with international standards,” 488 and while
noting that these regulations also bear a cost to Korean domestic automakers, said the cost
is proportionately much higher for importers because they must amortize the cost across a
much smaller amount of sales. According to Mr. Biegun, meeting new safety and
environmental regulations “can be so costly as to destroy the business case to remain in the
Korean market.” 489 Mr. Biegun stated his company's disappointment that the burden of proof
with respect to trade remedy will continue to lie with U.S. companies, and that the 25 percent
U.S. truck tariff was not included as part of the snapback provisions. Mr. Biegun added that
the agreement will merely provide temporary relief from current NTBs, and that new NTBs
will arise in the future. 490 He noted that the U.S.-based exporters would, from a business case
perspective, take the small volume exceptions that are specified for each of the NTBs.
At the Commission's hearing, Mr. Biegun expanded on a number of the issues brought out
in his testimony. He noted that importers tend to import higher cost vehicles into the Korean
market because they bring a higher margin that can more easily bear the expenses that come
from unique Korean design requirements, shipping costs, tariffs, and other costs, and also
because consumers of luxury vehicles are less price sensitive. On the subject of NTBs, Mr.
Biegun said that two of the currently most onerous standards—OBD II and K-ULEV—were
addressed, and said that “there is some convergence to the U.S. standards.” 491 However, he
noted that while the FTA addressed the current environment, this is an ever changing
industry and that each new model of vehicle presents an “opportunity for decisions that can
485 Ibid.
486 Biegun, testimony before the USITC, June 20, 2007, 209.
487 Ibid., 210.
488 Ibid.
489 Ibid., 211.
490 Biegun, “United States International Trade Commission's Hearing” written submission to the USITC,
June 20, 2007.
491 Biegun, testimony before the USITC, June 20, 2007, 239.
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