Korea free trade agreement on hold

Jan. 1, 2020
Autos, not auto parts, and exports, not imports, have been the big issue underlying the Democratic Congress' refusal to move forward with approval of the U.S.-Korea Free Trade Agreement.

Autos, not auto parts, and exports, not imports, have been the big issue underlying the Democratic Congress' refusal to move forward with approval of the U.S.-Korea Free Trade Agreement (KORUS FTA), which President Bush negotiated in 2007. But President Obama's announcement at the G20 meeting in Toronto in June that he wants Congress to vote on that agreement by the end of 2010 sets up a clash between the president and Congress on auto exports to Korea, which the White House sees as a component of a job creation and the get-out-of-the-recession strategy.

Of course, U.S. auto aftermarket sectors are more interested in what a KORUS FTA means for auto part imports from Korea. Korean auto part imports have increased markedly through the first decade of the 21st century. From a value of $650.4 million in 2004, they ran up to $2 billion in 2008 before falling back to $1.35 billion in 2009 because of the U.S. recession. The value of Korean auto imports similarly fell back in 2009, too, as did every product group (except tank parts!) in the Commerce Department category called HS87, which includes vehicles, except railway or tramway, and parts, etc. The Commerce Department does not break down the auto parts group further. Obviously, some portion of that is Hyundai and Kia parts. But there is certainly a good amount of non-branded, Korean parts for end uses — such as headlights — that end up on aftermarket shelves.

Jenny Burke, a spokeswoman for the Department of Homeland Security, which includes the Customs Service, says the import duty on Korean auto parts is 2.5 percent of the value of each imported article except where the part is made of cast iron, in which case there is no duty. Korea's 8 percent tariff on imported U.S. auto parts would also be eliminated.

Elimination of U.S. tariffs would be good news for U.S. retailers because Korean parts are generally pricey, according to James Sherwood, president and CEO of Sherwood Automotive, a major importer (and retailer) of Korean auto parts who started out in business in 2004 as an importer of Kia Sorento accessories.

"South Korean accessories are not inexpensive," Sherwood says. "The WAN has been competitive with the U.S. dollar, it is not similar to purchasing from Taiwan or China with extremely low pricing."

Obama has charged U.S. Trade Representative Ron Kirk with initiating new discussions with his Korean counterpart, Minister of Trade Kim Jong-hoon, to resolve outstanding issues that have stood in the way of congressional consideration of the Bush deal. The major impediment has been Ford's, Chrysler's and the UAW's complaints that the KORUS FTA does not do nearly enough to open the Korean market to U.S. auto sales. In 2007, when the International Trade Commission held hearings on the agreement, just before President Bush signed it, the estimate was that in 2006 Korea exported over 700,000 cars, vans, and sport utility vehicles (SUVs) to the United States, while the United States exported just over 4,000 of these vehicles to Korea. There are a number of reasons for that imbalance, mostly having to do with Korean nontariff and tax trade barriers. Less a factor is the Korean tariff of 8 percent.

Many congressional Democrats agree with Ford and the UAW (General Motors is neutral), particularly Rep. Sander Levin (D-Mich.), chairman of the House Ways & Means Committee, whose committee has jurisdiction over FTAs. When Obama announced at the June G20 meeting that he wanted to bring a revised KORUS FTA with him to the next G20 meeting in November in Korea, and submit it to Congress soon after, Levin said, "The date targeted by the President can be met only if the outstanding issues are fully addressed with enforceable commitments."

About the Author

Stephen Barlas

Stephen Barlas has been a full-time freelance Washington editor since 1981, reporting for trade, professional magazines and newspapers on regulatory agency, congressional and White House actions and issues. He also does a column for Automotive Engineering, the monthly publication from the Society of Automotive Engineers. He covers the full range of auto industry issues unfolding in Washington, from regulatory rulings on and tax incentives for ethanol fuel to DOE research and development aid for electric plug-ins and lithium ion battery commercialization to congressional changes in CAFE standards to NHTSA safety rulings on such things as roof crush standards and data recorders.

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