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

Brown expressed concern about the rules of origin in the agreement and said that as they
have a local content threshold that provides “an incentive for auto parts makers from
elsewhere in the region to circumvent their duties and access the U.S. market, duty-free,
through the FTA. Senator Brown added that the FTA does not guarantee that the market
access provisions will be stringently enforced. He noted the Korean government’s estimate
that Korean auto exports will increase by $1 billion. He also noted the lack of increased
market access arising from the 1995 and 1998 MOUs, and that he believes that “objective
and verifiable benchmarks,” which were proposed by U.S. industry and labor, are a better
way to achieve broader market access in Korea. 503
Hyundai Motor Co. expressed support for the FTA in a submission to the Commission,
stating that it believes “the benefits of vehicle tariff reduction under the KORUS FTA will
be mutual and fair.” Hyundai stated that, as a result of tariff and nontariff provisions of the
FTA, U.S. automakers should be able to improve their price competitiveness and market
share in Korea. Hyundai reported that establishing manufacturing operations in major
markets, including the United States, is part of its overall strategy to become one of the
world’s leading automakers, in recognition of “the value of investing where we sell our
vehicles.” Hyundai pointed out that it is engaged in the entire vehicle design, engineering,
manufacturing, and testing process in the United States. Hyundai added that the FTA will
create further opportunities for Hyundai to expand its market presence in the United States,
to the benefit of the U.S. economy and the U.S. consumer. Hyundai noted that it will benefit
from the U.S. duty savings negotiated in the FTA, stating that tariff and other provisions in
the FTA will “allow Hyundai and its dealers to provide U.S. consumers with more choice,
more competitive products and better service.” Hyundai noted, however, that many of the
vehicles its sells in the United States are made locally. 504
At the Commission’s hearing, Korean Ambassador to the United States Lee Tae-sik stated
that the U.S. automobile sector will benefit immensely from the U.S.-Korea FTA.
Ambassador Lee said that the FTA ensures that U.S. automobiles would have a fair
opportunity to compete in the Korean market through the elimination of Korea’s 8 percent
tariff on most U.S. cars, reforms to its taxation system, revisions to nontariff barriers such
as emission and safety standards, and strengthening of dispute-settlement mechanisms,
including the creation of snapback provisions. He addressed what he described as three
misconceptions concerning the Korean automobile sector.
First, he said that the Korean market is open to foreign automobiles. Although he noted
imported vehicles (by number of vehicles sold in 2006) accounted for 4.5 percent of the
Korean market and are sold at relatively high prices, he said that the foreign-vehicle market
share based on value rose to 14 percent in 2006. He also said that foreign-owned car
manufacturers and imported cars together account for 30 percent of the total domestic market
in Korea, compared to OECD member countries’ average rates of 40 percent. Second, he
said that Korea is not the principal source of the U.S. automobile deficit, as it represented
only $8.5 billion of the deficit and ranked fourth behind the EU’s $22.9 billion, Canada’s
$25.1 billion, and Japan’s $43.2 billion in 2006. Third, Ambassador Lee stated that
allegations that the Korean government fosters a campaign discouraging purchases of foreign
automobiles are “groundless.” He noted that Korean automakers Kia and Hyundai have
invested billions in high-tech manufacturing plants in Georgia and Alabama, respectively,
503 Senator Brown, “Re: U.S.-Korea Free Trade Agreement: Potential Economy-wide and Selected
Sectoral Effects,” written submission to the USITC, June 20, 2007.
504 Shin, “Statement of Hyundai Motor Company on the U.S.-Republic of Korea Free Trade Agreement,”
written submission to the USITC, June 27, 2007.
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