By on June 14, 2013

 

Free trade agreements are great, as long as the trade is really free, and as long as people stick to the agreements. In Korea, foreign automakers and distributors say Korean lawmakers and government agencies try to keep them out. There  is talk of “import bashing,” says Reuters.

“Korea is a highly protected market. Despite recent agreements to open up its market, the government is not helping … it’s actually doing its best to keep the barriers in place,” Reuters heard from “a senior global automaker executive.”

Imports are selling well in a market that ;previously was nearly entirely home-grown. In January-April, sales of imported passenger cars accounted for 12 percent of the market, up from just 2 percent a decade ago. Hyundai/Kia sales were flat.

  • In March, the offices of the Korea Automobile Importers and Distributors Association were raided by investigators of the country’s Fair Trade Commission. The agency alleged that BMW, Mercedes-Benz, Volkswagen and Toyota Motor were involved in price collusion.
  • In the same month, South Korean lawmakers proposed a bill to reduce corporate tax breaks on cars priced above 50 million won ($44,000) and bought as company cars – typically those top-of-the-range models from German, Japanese and U.S. automakers. For luxury marques such as Bentley, Porsche and Rolls-Royce, over 70 percent are bought as company cars.”
  • This week, local media reported that BMW Korea was being investigated by the tax authorities.

exportsharekorea

Meanwhile, Autoblog joins the fray, with the harrowing tale that “BMWs are cheaper than Hyundais in Korea,” and that “foreign brands have seen market share jump from 28 percent to 41 percent over the last two years.” Utter nonsense. Reuters correctly reports that imports have a 12 percent share in Korea, 11.83 percent to be exact for the first four months of the year, according to data by the Korea Automobile Importers and Distributors Association (KAIDA).

If you go to the considerable trouble of actually looking at the data, you see that imports to South Korea, which were at homeopathic levels before the turn of the millennium, went on a slow but steady rise in 2001. The trade agreement with the EU (from where most of the imported cars come) came in effect in 2011. The chart says that imports would have gone up anyway, with the FTA, or without it.

Get the latest TTAC e-Newsletter!

37 Comments on “Unfree Trade Agreements...”


  • avatar

    So true about “Free Trade” deals, someone has to suffer and its usually the Rank and File!
    Right now Canada and our Tory(Right Wing) Government are trying to get a Free Trade deal with the EU, before the EU tries to get a similar deal with the USA, one has to read between the lines to understand all the BS that goes into any Free Trade deal!

  • avatar
    Spartan

    Korea is trying to protect it’s workforce and extremely low unemployment rate, as they make nearly all of their cars domestically. I don’t blame them, as they have nothing to gain by allowing foreign carmakers to sell cars there and send the money back to their home countries, because that’s exactly what they’ll do.

    I live in Korea, and even if the flood gates opened for foreign cars, they’d still flock to Hyundai, Kia, Ssangyong, Renault/Samsung and Daewoos. Koreans are pretty brand loyal and patriotic.

    • 0 avatar
      th009

      The same happens in France, Germany and Italy. In spite of free trade. But even with a strong domestic industry, 90% is unlikely in the long term without trade barriers. (Japan is the exception to that rule, at least for now. But then most foreign companies have not tried seriously in recent decades.)

    • 0 avatar
      bd2

      Except that the Germans have a huge share of the Korean luxury market and the Japanese are regaining what they lost in sales (at one point, Honda had the best-selling import model) when the yen kept rising.

      There’s a reason why more foreign auto brands show their wares at the Seoul Auto Show rather than at the Tokyo Auto Show – they know that the Korean auto market is much more receptive towards import brands.

      And considering that Renault Samsung, GM Korea/Chevy and Ssangyong are all foreign owned – the share of “foreign” autos in Korea is even higher when you add these to sales of the German and Japanese brands.

      The Korean market is so impt. for BMW that they built their driving center/track in Korea and not Japan or China.

  • avatar
    th009

    I think that 41% figure may be for the premium market — if you look at the best-selling imported cars, you’ll see Mercedes followed by BMW, VW and Audi. But I can’t find my reference at the moment.

  • avatar
    pacificpom2

    Very true. Ford Australia tried to export the Ford Territory to Thailand, which has a FTA with Australia. We bring in Rangers etc.. and they would take Territories. I quote “The third hurdle has been non-tariff trade barriers. This has been the case even where there have been Free Trade Agreements in place. Last year, for example, Ford sent a shipment of Territory vehicles to ­Thailand to test the market. The Thai ­government imposed an excise duty on them, making the price unattractive ­compared to a similar locally made product. source (http://www.afr.com/p/exports_lifeline_for_local_car_industry_MgR9w53ESo8p2qHg1s5MGJ)” level playing fields indeed.

  • avatar
    Big Al from Oz

    Most are unfree trade agreements. If you look at them a little closer you will find most still protect elements of market share.

    I find this approach to FTAs quite annoying. You have the US/Euro/Japan who protect agri business, energy and industry. People must realise someone has to pay for the subsidies and handouts.

    My biggest argument in the global automotive industry is the inability of the US (NAFTA) to stop technical barrier and tariffs that protect cars and full size pickups. Also, the US should adopt the global benchmark and use UNECE regs.

    Korea is purely industrial, it has to be to survive, if it’s advantage was cheap wages in the past to succeed it will need to manage its economy to maintain that advantage, not have increasing wages and then try to protect itself by barriers and tariffs. That’s the way of Japan, Europe and the US.

    Since the GFC protectionism is rising, this will only hurt in the medium to long term. Biting the bullet now and with the over rated countries reducing living standards to within their means is the correct action. Maybe the our excesses might need to be curtailed and government intervention and subsidisation needs to be reduced for OECDE economies to compete effectively in the post GFC climate.

    The US, Euro and Japanese way of doing business will have to change, especially if they want to gain a larger share in the new and emerging markets. The US/Euro/Japanese are losing economic influence, just like the UK did when its empire reduced.

    If we don’t change our expensive ways the rest of the globe will pass us in the next few decades.

    Remember manufacturing isn’t high tech, a factory can be made in most any country.

    • 0 avatar
      wmba

      Still don’t agree with your viewpoint, Big Al. See no reason whatsoever to replace US vehicular safety rules with UNECE ones that feature bureaucratic type approval versus our current system. Both the crash standards and pollution controls are tougher here. Better the rest of the world go our way than vice versa. Ubiquity does not mean better.

      There is no great body of consumers in North America pining for expensive mini-pickup trucks like the Thai Ranger, except those same kind of people here on TTAC who want brown six speed manual wagons, and buy them secondhand with 115,000 miles on them. A full 1% of the market.

      “Remember manufacturing isn’t high tech, a factory can be made in most any country.” Right, you can set up a screwdriver and hammer factory anywhere. If, on the other hand, you actually want high tech manufacturing, it helps to have a workforce with enough training to run the machinery.

    • 0 avatar
      DenverMike

      @BAf0 – There isn’t a bigger 1st world economy that’s as “free” to trade with than the US. And UNECE regs were specifically designed to exclude US autos and purposely ‘zig’ everywhere the DOT and EPA ‘zag’.

      • 0 avatar
        Onus

        Quite to the contrary. A vehicle can be certified to both regulations. The automakers are just lazy.

        The ece regulations allow required things in the us, and vise versa.

        • 0 avatar
          Big Al from Oz

          @Onus
          They have differing design regulations, vehicles that are UNECE compliant can’t just be imported into the US.

          That’s why Ford wanted the US to adopt UNECE regulations. The UAW is against this. It appears the UAW are more socialist and protectionist than the Europeans.

          From what I can gather the US’s regulations are that protectionist you can’t grey import a vehicle unless it the same vehicle that is sold in the US, ie, Australia and Eurocountries grey import full size pickups and have no problems.

          Try importing a global Ranger into the US, its not possible to have one registered to drive on your roads. Socialism?

          For FTAs to work effectively the US has to begin by adopting our systems ie metric, design standards etc.

          If the US doesn’t it will eventually be end up like the British with their currency, systems of measure etc.

          The US will change, but it will be screaming and kicking.

          • 0 avatar
            DenverMike

            @BAfO – It’s easy enough, but what’s the point of adopting UNECE regs if US cars would still pay the EU import duty that’s 4X higher than import cars entering the US? And imported US trucks would get hit with approx 8X higher EU tariff???

            US autos are already on the metric system. KPL and over all dimensions aren’t hard to figure out *but* UNECE cars still use ‘inches’ for wheels and tires… Shouldn’t that be ‘fixed’ 1st?

          • 0 avatar
            DenverMike

            @BAfO – True, it’s not possible to import grey market trucks to the US, however, and as we’ve seen in the past, it’s easy enough for OEMs to officially import trucks here. But the absolute, 22.5% duty the EU holds against US trucks kills any chances of them officially entering the UNECE zone.

      • 0 avatar
        DenverMike

        There’s lots more to it than just being lazy. Yes it’s easy, but 1st there has to be a strong business case. And in the case of breaking into the EU market, tariffs are 400% higher than US.

        • 0 avatar
          jpolicke

          Which could be brought to an end immediately by the US announcing that we were adopting a policy of reciprocal tariffs. Tax our exports however you please, just bear in mind that yours will receive exactly the same treatment.

          America can survive just fine without German cars, but the announcement of an EU-style tariff on them would have Angela Merkel in the Oval Office the next day on her knees. (Which is a pretty scary thing to visualize.)

          • 0 avatar
            DenverMike

            Scary indeed… So. California, alone, is the biggest market for BMW and Mercedes. Yes including Germany.

          • 0 avatar

            California is not exactly the American state culturally. In some part of CA you may think you are in Mexico, in other parts – somewhere in Asia. So Asian and German cars are the most popular. The one reason may be the cultural and the other – roads are more twisty and houses and garages are tiny. If Germans leave the state there will be riots on the streets. People will start smashing windows and putting cars into fire. Wait, it already happening with occupy movement but it will go mainstream. I cannot imagine life without German cars, I would probably commit suicide.

          • 0 avatar
            DenverMike

            “CA is not exactly the American state culturally. In some part of CA you may think you are in Mexico, in other parts – somewhere in Asia.”

            You just described SF, LA, SD, and Orange County ‘To a T’… The unofficial “Meca” of Asian and German cars.

      • 0 avatar
        sgeffe

        Have noticed such things on cars over the last decade or so such as the “push forward to activate high-beam lights” and dedicated flash-to-pass versus a full pull back to activate the brights. Also, my new Honda Accord has turn signals which blink three times if you momentarily select the “lane-change” function, and in addition to that, all Hondas now have front doors which unlock when you pull the handle, a-la Fords going back to the “malaise era” at least!

        Are all of these features, particularly the “push forward for brights” thing, EU-mandated items? Surely if they are, we’re already adopting their standards to a certain extent–the EU should be able to up their crash game, and everybody’s happy; then Ford, bring us your poor, tired, huddled Rangers yearning to be sold (if a market case could be made). (Heaven knows our hoodlines aren’t going to lower again thanks to the “Darwin-prevention” regs!)

  • avatar
    J.Emerson

    The Koreans have nothing to gain from allowing unrestricted imports of foreign cars. They have a wide-ranging auto industry which is already globally and internally competitive, and produces products in all ranges of the market. As other posters have stated, even if non-tariff barriers were removed, it’s unlikely that imports would capture much more market share then they already have. They’ve had time to learn from the example of the United States and Britain that neglect of domestic industry is just surrender of sovereignty by another name.

    • 0 avatar
      Spartan

      Couldn’t have said it any better.

    • 0 avatar

      very good viewpoint. And true. The attitude is similar to Brazil’s. Does the country really gain anything by allowing the lux car market to be all imports? In the end you get situation like Brazil’s where all makers are foreign and do nothing but make small cars locally.

      • 0 avatar
        th009

        Does it really matter which specific models are made locally? As long as the local production and jobs are there, aren’t the smaller cars just as good?

        Generally high-end cars will be less likely to be made locally (and more likely to be made in the manufacturer’s home country) since the volumes will be much smaller. There is no A6/A8, 5/7-series or E/S-class being built in the US or Mexico, either.

        • 0 avatar

          i think it matters because if produced locally, more stays here. More jobs, more varied suppliers, in short, a more varied and sophisticated manufacturing base. Why are these cars built in Germany? Sure there are sound economic reasons. But there are also political considerations. So, ‘forcing’ local production of high end cars is a political decision. One I believe Brazil, or any other country has a right to make.

          • 0 avatar
            George B

            Question: “Why are these cars built in Germany?”

            Answer: 1) Because the total volume of luxury cars sold in any one country is usually too low to fill the capacity of a local factory and 2) luxury cars built in Germany are considered to be more prestigious and generally better built when real Germans sweat the details of assembly.

          • 0 avatar

            “luxury cars built in Germany are considered to be more prestigious and generally better built when real Germans sweat the details of assembly.”

            if you say so

  • avatar
    wmba

    “In the same month, South Korean lawmakers proposed a bill to reduce corporate tax breaks on cars priced above 50 million won ($44,000) and bought as company cars – typically those top-of-the-range models from German, Japanese and U.S. automakers.”

    Apparently, South Korea believes they can pick and choose which part of their FTA with the EU they choose to honor. If they want to keep selling cheap cars and taxicabs in Europe perhaps they ought to wake up and smell the roses.

    EU bureaucracy is why I am an opponent of the currently being negotiated FTA between Canada and the EU. Next thing you know, our municipal water systems will be being bought up by Spanish, French and even Australian (the dreaded Macquarie – what are ethics, anyway?) companies. And the man from Brussels will demand we honor our commitments, while lecturing us on our primitiveness, lack of culture and deference to authority, and not understanding that the Euro way is just better. I wonder if the open sewers in Bruges still exist, hmm …

    I’m surprised the Koreans have so far avoided this specter. Oh well, the wheels of bureaucracy grind slow, but are inexorable.

    • 0 avatar
      bd2

      Doing away with the corporate tax rates also hurts Hyundai (and Kia) -as Hyundai sells a lot of the Equus and Genesis sedans in Korea and the Azera is one of the top 3 sellers.

  • avatar
    CoreyDL

    In other news, colors NOT to buy a car in – whatever the hell green that is.

  • avatar
    bd2

    The Germans actually started to gain real traction in the Korean market when they cut some of their massive profit margins back in 2005-6.

    Since then, the weakening Euro and the FTA has accelerated the Europeans’ gains (despite being a smaller overall auto market, the Korean market is seen as being more important to the Europeans than the Japanese market).

    Even the Japanese brands were making headway prior to 2009, but the rising yen made their pricing uncompetitive.

    Now with the weakening yen and Japanese imports from the US, the Japanese brands are making up for lost time.

    BS likes to talk about the rise in import sales in the Japanese auto market but most of that increase is due to Japanese branded autos imported into Japan from Thailand, the US, etc.

    The Korean auto market has seen a much greater rise in foreign imports and even domestically built autos for GM Korea, Renault Samsung and Ssangyong are foreign owned (basically akin to Ford Europe and Opel/Vauxhall in Europe.

    The Europeans, in particular, are putting the hurt on Hyundai’s and Kia’s luxury offerings (Genesis, Equus and K9) which is one reason why Hyundai is looking to expand into Europe and other markets with the next generation Genesis and why Kia is bringing the K9 to NA at an accelerated pace.

  • avatar
    bd2

    The Europeans are coming out much better from the FTA since all of their auto are imported into Korea from Europe (not to mention at significantly higher pricepoints with fat margins) whereas soon 90% of what Hyundai sells in Europe will be built in Europe.

  • avatar
    jimbob457

    There are overt trade barriers. There are sneaky trade barriers. Speaking as a consumer of motor vehicles, they are both total sh*t to me.

    You really wanna playa da game, playa by da proper rules. We will all be better off in the long run for it.

  • avatar
    jpolicke

    The Autoblog article has a dramatic title but completely fails to establish that BMWs actually ARE “cheaper than Hyundais”, let alone explain why.

    As long as Korean cars that sell for more than $44000 are taxed equally I really don’t see this as a violation of free trade agreements. Certainly not when import tariffs have been lowered and are continuing to go down. Granted, this has a greater impact on the German luxury brands (presumbly, this doesn’t affect VW as much), but it seems to me more of a crackdown on businesses taking advantage of the tax code to live high on the taxpayers’ expense. The tax code recognizes that a firm needs company cars with which to conduct business, but does one really need a high end luxury model to accomplish this? So the government draws a line and says that there are no corporate tasks that a sub-$44k car can’t fulfill. If you really really need an S-Class (because the Bluetooth makes your phone calls so much clearer) than the cost over $44k isn’t deductible.

    • 0 avatar
      Big Al from Oz

      @jpolicke
      You are correct in regards to how taxation within a country works. In Australia we have what is called a Luxury Car Tax on vehicles sold for more than $60 000.

      This tax affects ALL vehicles, imports and locally produced. It doesn’t discriminate. We have a 5% import tax on vehicles, this is driven by union and corporate demands (Detroit threats or off shoring).

      There are many on this site who have either little knowledge on taxation within the global market, or they are used to spread the word for polictical reasons, ie DenverMike (UAW).

      There is more to FTAs than taxation, a significant factor is the engineering standards that apply. Technical barriers (non UNECE standards) and taxes that restrict importation (Chicken Tax) should be removed.

      Contrary to some views the UNECE isn’t a ‘Euro thing’, it is actually a global standard used by most countries except for, THE USA and NAFTA, the UN (United Nations).

      Even countries that don’t have legislated standards for UNECE regulations actually use them.

      The use of a common standard globally will reduce the cost of vehicle ownership. Why redesign vehicles for different countries, the biggest and only difference is what side the steering wheel is on.

      One day I do hope governments globally will enforce driving on one side or the other.

      In my view Korea (and the US/Euro/Japan/etc) can’t support/subsidise its living standard at the expense of others’ by taxation and import barriers.

      The Korean’s will end up like the US/Euro/Japan with massive borrowing supporting industries that aren’t viable.

      Corporate welfare has to stop along with ridiculous union demands (UAW etc). Unions and corporations have to live within their means, like our governments should be doing.

      The US didn’t get to where it is by not exporting and building its nation, like Australia. So why get to a point and say our needs back then are different to yours now.

      The US is losing its influence globally everyday, and sooner or later like the British the US will realise it has to work and play with others, and sometimes by others rules.

      Korea now must do the same, it has gotten to a point where it just can’t rely on cheap labour as a resource. It must be innovative.

      • 0 avatar
        DenverMike

        @BAfo – UNECE reg are technical barriers specifically and intentionally the direct opposite of US regs. UNECE regs are not the “global standard”. They’re for the Eurozone only.

        UNECE regs are easy enough to contented with, same as US regs. *HOWEVER*, the ridiculous 10% EU tariff on import autos is a whole other story………………

        And the 22.5% EU tariff on import trucks is INSANE! And with ZERO loopholes to make it irrelevant, like the Chicken tax… Remember the ’80s mini-truck craze/fad/invasion in the US? Where in thee HELL was the Chicken tax then???????????????


Back to TopLeave a Reply

You must be logged in to post a comment.

Subscribe without commenting

Recent Comments

New Car Research

Get a Free Dealer Quote

Staff

  • Authors

  • Brendan McAleer, Canada
  • Marcelo De Vasconcellos, Brazil
  • Matthias Gasnier, Australia
  • W. Christian 'Mental' Ward, Abu Dhabi
  • Mark Stevenson, Canada
  • Faisal Ali Khan, India