In the run-up to the congressional vote on the Korea FTA, the Obama administration claimed that its small tweaks to the Korea FTA's auto provisions would lead to greater exports of U.S. autos to Korea. The relaxation of Korean environmental and safety standards for imported U.S. vehicles was supposed to soften the blow of the clobbering that U.S. automakers would suffer when U.S. tariffs on Korea vehicles were lifted under the FTA. Trusting this claim, Congress passed the Korea FTA last month. Now Bloomberg is reporting that the tweaked auto provisions were all for naught:
When Back Seung Chul bought a new car in Seoul, he didn’t even look at imported models from General Motors Co. (GM), Chrysler Group LLC and Ford Motor Co....
Back’s decision -- he bought a Sportage R sports utility vehicle from Hyundai (005380) affiliate Kia Motors Corp. -- suggests that a new U.S.-Korea trade deal won’t mean a leap in sales in the Asian country for U.S. automakers, which accounted for just 1.1 percent of the market last year. The agreement, likely to take effect Jan. 1 after it was signed by President Lee Myung Bak in Seoul today, calls for the phasing out of South Korea tariffs on U.S. vehicles.
“It is highly unlikely American cars will do well in the Korean auto market,” said Kang Sang Min, a Hanwha Securities Co. analyst in Seoul. “Local automakers like Hyundai and Kia can make good cars and offer quick, convenient service.”
The article also discusses the widespread preference for fuel-efficient vehicles in Korea, since Koreans must buy gasoline at double the price of U.S. consumers. Somewhat ironically, the Obama administration's efforts to have Korea relax its fuel efficiency standards for imported U.S. vehicles will only solidify the negative perceptions of U.S. vehicles in Korea.
In sum, Koreans' preference for domestic vehicles over U.S. vehicles - not safety regulations - is the reason that sales of U.S. vehicles have lagged. We warned about this in our comments to the U.S. International Trade Commission (USITC) about the methodology that they would use to predict the impact of the FTA upon the U.S. auto sector. Even though the USITC did not adopt the modifications to their methodology that we recommended, its report still predicted that the annual U.S. auto trade deficit would rise by hundreds of millions of dollars under the Korea FTA. Although Bloomberg's reporting on this issue can be viewed as better late than never, it is certainly too late for the thousands of U.S. auto workers who will likely lose their jobs from the Korea FTA.