The Proposed U.S.-South Korea Free Trade Agreement (KORUS ...

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it also finds that “approximately 55-57% [would be] represented by diverted imports
from other trade partners.” 49 Jeffery Schott states that South Korea gave a “priority
to eliminating the small U.S. tariff” primarily because of Japanese competition.
Since 2001, the won has strengthened against the U.S. dollar, while the Japanese yen
has weakened, creating a disadvantage in the U.S. market for Hyundai, whose
vehicles must compete against Japanese companies’ vehicles on price. One result
has been reported significant declines in Hyundai earnings. 50 The USITC also notes
plans by Hyundai to begin producing vehicles based on hybrid technology,
indications that Hyundai and Kia were studying the development of pickup trucks,
and actual exports of a small number of pickups to third markets by Ssangyong, a
smaller producer. 51 Hyundai and Kia do already produce small pickup-type vehicles
in Korea, but they would not appear to be suitable in design or style for the United
States. 52
U.S. industrial interests’ views on KORUS FTA may be described as follows:
! The Detroit “Big Three” are split. Ford and Chrysler are opposed,
while General Motors (GM) is neutral.
! Automotive parts suppliers were reported to support the FTA.
! Broader-based industry organizations are favorable, despite the
opposition of two major motor manufacturers and some other
sectoral groups.
These views were reflected in the April 2007 report of the Industry Trade
Advisory Committee on Automotive and Capital Goods (ITAC 2) to USTR of April
2007. The chair noted that, “Generally, the manufacturers of capital goods see [the
FTA] as an important milestone in providing market access to a country and region
historically protectionist.... However, in terms of U.S. automotive equipment
manufacturers, the outcome is mixed.” 53
Both the U.S. motor vehicle industry representatives and the whole of ITAC 2
initially recommended an “unconventional” approach on automotive issues in the
negotiations. It would have “precondion[ed] the phase-out of U.S. automotive tariffs
on the demonstration of South Korean market openness in terms of improved import
penetration that is on par with that of other OECD countries.”
49 Ibid., pp. 2-12 and 3-82, and Table 2.2. Dr. Nam’s simulations from the paper cited above
produce somewhat more modest results. He estimates a net Korean export gain of about
$900 million, a U.S. gain of about $130 million, leading to an increase in the U.S. bilateral
deficit of about $770 million. As with the ITC findings, he concludes, “bilateral tariff
elimination between Korea and the United States ... will increase the two countries’ exports
and imports of automobiles and parts at the expense of other countries;” p. 10.
50 Jeffrey J. Schott. The Korea-US Free Trade Agreement: A Summary Assessment.
Peterson Institute Policy Brief No. PB07-7 (August 2007). p. 4.
51 USITC. U.S.-Korea FTA, p. 3-83.
52 According to Ward’s Automotive Yearbook, in 2006, Hyundai produced 98,000 “Porters,”
and Kia produced 72,000 “Bongos,” both described as pickups.
53 ITAC 2 report, p. 1.