Autos loom large in U.S.-Korea trade talks

on Jul21

During a summit at the White House last month, South Korean President Moon Jae-in, left, and President Donald Trump committed to fostering “expanded and balanced trade while creating reciprocal benefits and fair treatment.” Photo credit: BLOOMBERG

WASHINGTON — The auto industry is expected to be a major focus of talks on how to reduce the U.S. trade deficit with Korea, with the Detroit 3 pushing for greater access in a market that remains significantly closed.

The U.S. government notified South Korea on July 13 that it plans to call a special meeting of a standing joint committee to modify the U.S.-Korea Free Trade Agreement in hopes of removing barriers to U.S. exports. Although the meeting is part of a mechanism for addressing implementation concerns, the Trump administration is essentially trying to rewrite the deal much as it is doing through other means with the North American Free Trade Agreement.

Automakers say the problem with KORUS, as the pact is known, is that it hasn’t been rigorously enforced to keep Korea from using protectionist tactics. They also are demanding the addition of enforceable rules prohibiting currency manipulation, which has kept U.S. import prices high and subsidized Korean exports.

“We believe improving U.S. access to the Korean auto market is important in strengthening the competitiveness of the American auto industry,” Matt Blunt, president of the American Automotive Policy Council, said in a statement. “We continue to have high expectations for KORUS, but realizing those expectations will require addressing Korean technical barriers and currency policy, which are slanting the playing field and holding back our market share.”

Leaders of tax and trade committees in the House and Senate instructed U.S. Trade Representative Robert Lighthizer to consult closely with Congress before meeting with Korean officials, as well as during the negotiations. Among their concerns are implementation of existing commitments on automotive trade and customs issues.

During a summit at the White House last month, South Korean President Moon Jae-in and President Donald Trump committed to fostering “expanded and balanced trade while creating reciprocal benefits and fair treatment.”

Focus on deficits

The U.S.-Korea Free Trade Agreement was signed during President George W. Bush’s administration in 2007. It took effect in 2012 after President Barack Obama pushed ratification through Congress.

The Trump administration has focused on trade deficits with major trade partners as part of a nationalist agenda to curtail outsourcing and increase domestic manufacturing. The Commerce Department is leading an interagency review of large bilateral trade deficits to determine if other countries have gained an advantage by using regulatory barriers to control market access, or unfair practices to make their products cheaper in the U.S.

Last year, the U.S. imported $27.69 billion more in goods from Korea than it exported — more than double the deficit from 2011. A $10.08 billion surplus in services, however, narrowed the overall trade gap to about $17.6 billion.

Autos represent the largest component of the trade deficit with Korea. Last year, the U.S. exported $1.55 billion worth of new light vehicles to Korea, up from $369.6 million in 2011. U.S. imports of Korea-built vehicles doubled during the past five years, peaking in 2015 at $17.28 billion before dropping last year to $16.07 billion. ​

In unit terms, Korea shipped 964,432 vehicles to the U.S. and imported 60,102, a fivefold increase over five years, according to the Korea Automobile Manufacturers Association. The gain reflects rising exports by Japanese manufacturers of U.S.-built vehicles.

Hyundai and Kia benefited from selling into a rapidly growing U.S. market, which crested last year at 17.5 million vehicles. The trade agreement was not a factor, because the 2.5 percent U.S. tariff didn’t phase out until 2016.

Now, the market is cooling and Korean carmakers have a thinner portfolio, as well as limited supply, of crossovers that are popular with American consumers.

‘Constant tension’

Ford Motor Co. has long alleged that Korea hasn’t complied with terms of the free trade agreement and that it engages in currency manipulation.

“The regulatory environment continues to be hostile to imported products,” with U.S. manufacturers constantly playing whack-a-mole to adjust to new rules thrown up by Korean authorities, Steve Biegun, Ford’s vice president for international governmental affairs, said in an interview.

The “harassing” of importers, he said, “has led to a constant tension in the business climate in Korea.”

“What we’re asking the administration is that U.S. standards be accepted in Korea so that Korean bureaucrats no longer have the ability to game the system by inventing new or unique standards that can be used to block imports.”

Ford is also seeking to add binding and enforceable rules on currency intervention. The omission of currency provisions is the primary reason Ford pulled its support for the Trans-Pacific Partnership trade agreement before it was torpedoed by Trump.

Biegun expressed optimism that Koreans would buy American vehicles if given the opportunity, despite a strong cultural inclination to support the home team.

“The Korean market is similar to ours,” he said. “They they want our cars.”

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