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

keep the products out.” 492 Mr. Biegun stated that 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, and that the low volume exemption encourages foreign automakers to take “the
bird in the hand, rather than make the huge expenditure to get into the bush and see what else
is out there for you.” 493 Mr. Biegun added that the combination of the low volume
exemption, the potential for future standards that are not addressed in the FTA, and the fact
that the new tax structure will still place a higher burden on the vehicles that Ford sells in
Korea will encourage U.S. automakers to prefer a low-volume strategy. Mr. Biegun also
touched on the anti-import bias in Korea, stating that, while it has been curtailed, “the fact
that this agreement had to explicitly enshrine a commitment from the Korean government
that it would cease and desist from such activity indicates that it is still a very real
concern.” 494 On dispute resolution, Mr. Biegun stated that it is “practically impossible” for
the U.S. government to recommend a snap back of U.S. tariffs, because U.S. and Korean
government officials will be influenced by “exogenous factors while they are making the
decision.” 495
As an attachment to the Automotive Equipment and Capital Goods (ITAC 2) report, Ford
Motor Co. provided its assessment of the FTA, noting that it is disappointed that the
recommendation of the U.S. auto companies that any U.S. “tariff reductions for Korean
vehicles imported into the U.S. be conditional on measurable, significant, and sustained
opening of the Korean auto market” was not accepted by the USTR. 496 Ford stated that U.S.
tariff elimination will result in a lopsided, immediate benefit to the Korean auto industry.
Ford stated that some progress was achieved in the FTA with respect to nontariff measures,
but noted that the automotive dispute settlement provisions put the burden of proof with U.S.
exporters. Ford asserted that, at best, the agreement may only result in small volume
opportunities for U.S. exporters while completely opening the U.S. market to Korean vehicle
exports. Specifically with respect to tariffs, Ford noted that Korean automakers will be the
immediate beneficiaries of the FTA tariff provisions, with an immediate estimated cost
savings of up to 40 times that of U.S. automakers exporting to Korea, based on 2006 bilateral
vehicle trade levels. Ford also pointed out that there are 1,300 Hyundai and Kia dealers in
the United States, compared to one Ford dealer in Korea.
On the consumption tax, Ford stated that the FTA provisions reduce, but not eliminate,
discrimination based on engine size. On the annual vehicle tax, Ford stated that, although the
FTA provisions bring some improvement in the system, nearly all U.S. vehicles fall in the
category with the highest tax category, and that the ultimate effect will be minimal. On the
subway bond, Ford pointed out that the FTA merely caps the tax at the current level and
continues to be applied based on engine size. On TBTs, Ford stated that the Korean system
will continue to use a mix of U.S. and European safety and emission standards; the K-ULEV
requirement was not eliminated (but, pending clarification, Ford believes that the
trade-distorting effect of K-ULEV was removed); the OBD requirement was not eliminated
but rather, a small volume exemption was permitted; and clarification is needed as to
whether U.S. safety certified vehicles will be accepted as meeting all Korean safety
regulations.
492 Ibid.
493 Ibid., 241.
494 Ibid., 243.
495 Ibid., 291.
496 ITAC (2) on Automotive Equipment and Capital Goods, Advisory Committee Report, April 27, 2007.
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