At last week’s G20 summit in Seoul, the US government failed to ratify the much-anticipated KORUS free trade agreement with South Korea, with conflict over automotive import tariffs central to the continued stalemate.
US president Barak Obama and South Korean president Lee Myung-bak set a deadline six months ago for resolving those outstanding issues at the summit that have trapped the agreement in Congress since 2007. But Obama said on Friday last week that he was not willing to sign a trade deal for the sake of making an announcement at the cost of signing one that was a ‘win-win’ for both countries.
US officials have not revealed the changes they want to make to automotive provisions negotiated between the two countries in 2007 only stating that automotive-related differences were the main reason for the failure to reach a deal.
Amongst the issues affecting the agreement is a refusal to change a provision in the 2007 paper for an immediate end to the 2.5% tariff the US levies on imports of Korean cars. The Korean government has also stipulated a number of customs and regulatory standards that carmakers in the US and the EU say discriminate against foreign competition and are perceived as highly restrictive and unfair.
One example is that South Korea does not fully acknowledge international test cycles and standards and applies its own unique rules. For instance, regarding carbon dioxide emissions, an approved and tested car from the US or EU cannot be sold in South Korea without modifications being made that are costly when applied to low-volume shipments.
Carmakers in US fear the agreement would guarantee access by South Korean automotive companies to the US market without reciprocal assurances that US carmakers could improve their sales there.
South Korea only imported around 6,100 vehicles in total from the US last year, while last month Kia alone sold nearly 38,000 vehicles in the US, including those produced at its plant in the southern state of Georgia.
Hyundai has rejected the notion that South Korea may be operating discriminating regulatory standards, stating that it currently does not have any trade barriers to vehicle imports. This week it told Automotive Logistics News it was still premature to make any forecast on a resolution to the agreement that others consider to be well overdue.
Labour leaders in the US unhappy about the tariff concessions over South Korean imports and the impact on US jobs have welcomed the delay. The United Auto Workers union sees the move as a potential threat to jobs at a time when 15m people are out of work in the US, with the influx of Korean models endangering jobs in the automotive industry.
On the other hand, with Kia opening its plant in Georgia earlier this year, complementing Hyundai’s existing plant in Alabama, the growth of the Korean brands in the country have also contributed to economic growth and job development.