S. Korea, U.S. Reach Accord on Auto Trade : Relations: Seoul will eliminate barriers that have limited American auto sales there to less than 1% of the market.
A low-key negotiation with South Korea blossomed suddenly Thursday into a major trade agreement, with the White House announcing that Seoul will begin tearing down towering barriers that have limited U.S. auto sales there to well under 1% of the market.
“This agreement is a significant and major step forward,” U.S. Trade Representative Mickey Kantor said after approving the pact, which was reached at 7:45 a.m. EDT--just hours before a deadline that could have led to the imposition of trade sanctions against South Korea.
Trade experts praised the agreement as tougher, more concrete and more enforceable than the auto pact that was reached in June with Japan.
It covers six barriers, ranging from a three-foot-high stack of safety regulations that will be chopped down to a relative handful of pages, to advertising regulations that kept most foreign auto companies off South Korea’s airwaves, to enforcement of the Korean tax code that led to audits of taxpayers who buy foreign cars.
But even as the American Automobile Manufacturers Assn. praised the agreement, it said that greater sales in South Korea by U.S. and other foreign auto companies will remain stymied by “significant barriers,” among them high tariffs and other taxes.
The agreement could eventually open South Korea to Japanese auto makers, which are currently blocked from competing there.
The United States’ long-running trade disputes with Japan have attracted much more attention than the problems with South Korea, but the obstacles Seoul has placed in the way of foreign products have been every bit as difficult to breach.
A report drawn up by the Clinton Administration’s Advisory Committee for Trade Policy and Negotiations said that “every recent Administration has confronted the extraordinary volume and variety of barriers to imported goods and services erected by the government of Korea.”
But, it said, “nothing has been effective in persuading Korea to genuinely open its domestic market to many foreign goods and services.”
The panel recommended that the United States find effective policy weapons while gaining the support of the foreign policy and defense establishment--a reference to U.S. reluctance to challenge South Korea because the Pentagon relies on its entrenched relationship with the South Korean military as a bulwark against North Korean aggression.
In trade disputes that reach beyond the current auto issue, the report said, companies trying to sell cosmetics, medical devices, processed foods and pharmaceuticals in South Korea have been subjected to cumbersome product approval processes imposed by government agencies there. And exporters of perishable foods have seen their products spoil on the docks.
The auto market has been one of the most difficult for foreigners to crack.
In 1994, Kantor reported, the foreign share of the Korean market was less than 0.3%. The United States sold 1,900 automobiles in Korea, while Korea sold 207,000 in this country. By comparison, imports accounted for 5% of the Japanese auto market, 33% in the United States and 38% in Germany and France.
“It’s a classic sanctuary market,” Kantor said at a news conference. He said South Korea is the third-largest auto exporter and that by 2000, Koreans are expected to build 5 million automobiles, 3 million of them for export.
The Korean market itself, which is larger than the Mexican and Canadian markets combined, is the fastest-growing in Asia. If the U.S. share can climb to 5%, Kantor said, the market would be worth $1 billion, or 55,000 vehicles a year, to American manufacturers.
As it built its powerful industrial complex in the four decades after the Korean War, South Korea discouraged its citizens from buying imported goods, portraying purchase of domestic products as a “patriotic duty.” That practice, U.S. officials complained, led to a perception that foreign goods were inferior. To counter that, the South Korean government has agreed to take undisclosed steps “to improve consumer perception of imports,” Kantor announced.
The South Korean trade ministry will also provide the Korean Automobile Importers and Dealers Assn. with a letter stating that “ownership of a foreign car, in and of itself, does not constitute grounds for a tax audit or other government harassment.”
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Trade Pact at a Glance
Highlights of South Korean concessions in auto trade pact with United States:
* Annual registration tax on cars with larger engines--most U.S. cars--lowered by an average of $2,800 per vehicle.
* 100% foreign ownership of auto retail financing entities allowed; currently there’s a 49% limit.
* Standards and certification practices for imported autos liberated.
* Foreign advertisers given equal access to television air time.
* Routine tax audits on South Koreans who buy imported cars ended.
