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Make Korea free trade pact fair to Americans

04/07/10

by Ron Gettelfinger

Let's say for the sake of argument that you are considering buying a Hyundai or Kia built in South Korea. Would you still purchase the vehicle if it meant that the government would audit your income tax forms?

My guess is you'd be a little intimidated by that prospect. But that's what used to happen to Koreans when they purchased vehicles imported from the United States and elsewhere.

What this is called is a nontariff barrier (NTB). While the Korean government doesn't audit people buying U.S.-built cars since the practice became public, it still uses NTBs quite effectively: Korea exported 476,833 passenger vehicles to the United States last year. U.S. automakers exported 5,878 vehicles to Korea. Korea's total auto shipments to the United States was worth $8.3 billion in 2009. The value of our auto exports to Korea was $419 million, according to the American Automotive Policy Council.

Korea is now the fifth largest producer of vehicles in the world and the fourth largest exporter. The Korean market has just 4.4 percent import penetration, second only to Japan, which has 3.9 percent. By contrast, the United States, the most open auto market in the world, imported 41.6 percent of its vehicles with the import percentage from Korea at 11 percent or 4.6 percent of the entire U.S. market. If you take away NAFTA vehicles from Canada and Mexico, which have high amounts of U.S.-built components, Korea has 21 percent of the U.S. imports.

Clearly something is out of whack here. How can Korea so effectively keep our products out, while we've seen more and more Hyundais and Kias on our roads?

Would you buy a foreign vehicle if you knew that insurance rates would be much higher simply because it was made in another country? Or that you'd pay higher taxes on it? Korea uses quite a few methods to shut out U.S.-manufactured auto products. One way is to make technical and safety standards difficult for U.S. manufacturers to achieve. Simply changing the shape, size or location of the license plate can affect whether a vehicle meets those standards, which change often with little notice, especially for automakers not based in Korea.

Emissions and mileage standards in Korea are often different than international standards, making them difficult for U.S.-based auto companies to attain, and when they do, the standards again suddenly change.

The tax system in Korea is set up to impose higher rates on larger vehicles and engine sizes. You can guess which nation has larger engine and vehicle sizes.

And those are just some of the unfair trade advantages. As for actual import duties, the United States imposes a 2.5 percent tariff on passenger cars and auto parts coming here from Korea. Korean tariffs on the same products are 8.5 percent. This, combined with NTBs like those mentioned above, give the Korean auto industry quite an advantage -- and incentive -- to flood our market with their products. Think about that the next time you pull up at a red light next to a Korean-built vehicle: How many good-paying jobs did that unfair advantage affect in my community?

It's important to address this trade imbalance and unfair advantage before any "free" trade agreement is signed with Korea. The KOR-US Free Trade Agreement negotiated by the Bush administration in 2007 would reduce to zero both nations' tariffs on passenger vehicles and auto parts. At present, there is a 25 percent U.S. tariff on light trucks, which prevents Korean manufacturers from producing pickup trucks in a low-wage nation and flooding our market. This tariff would be phased out as well, allowing Korea unfettered access to that market and jeopardizing 20,000 U.S. jobs.

Unless something is done about the unfair trade advantages -- and done in a way that binds Korea to real fair trade -- Korea still holds all the cards. You can reduce the taxes to nothing, but if Korea is still allowed to discriminate against U.S.-manufactured auto products with impunity, we'll continue to bleed thousands of decent-paying jobs.

This is a serious issue for domestic auto companies, our members and the country: We're the ones who are bleeding.

Ron Gettelfinger is president of the UAW. This op-ed was originally published in the April 7, 2010 edition of the Detroit News.

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 The views expressed by contributors to At Issue do not necessarily reflect the positions of the UAW.