A U.S. House of Represenatives subcommittee meeting became a forum for Ford to advocate on behalf of harmonized vehicle standards, as the US and EU continue to discuss a possible free trade deal.

Joe Hinrichs, Ford’s President of the Americas, said that harmonized standards would allow Ford to cut costs in areas like design, manufacturing and engineering. Ford is aiming to homogenize its lineup across the globe under its “One Ford” plan, eliminating regional models where necessary. Vehicles like the Edge and Mustang will be engineered for world markets in their next generation, while regional models like the rear-drive Falcon, sold in Australia and select world markets, will be killed off.

Automotive News reports bi-partisan support for the measure. Rep. John Dingell, whose Michigan congressional district encompasses Dearborn, where Ford is based, offered support for the measure, while Rep. Terry Lee, who chairs the subcommittee on commerce, manufacturing and trade noted “positive effects that pursuing a regulatory mutual recognition standard could have on the domestic automotive industry.” Translation: if this goes through, we may just get the Focus RS.

It’s not just the UAW that is upset about free trade agreements. The Koreans are likewise. The offices of the Korea Automobile Importers and Distributors Association were raided by investigators of the country’s Fair Trade Commission, the Financial Times reports. The agency alleges that BMW, Mercedes-Benz, Volkswagen and Toyota Motor were involved in price collusion.

It just so happens that the four are the most successful importers to Korea, accounting for 80 percent of car imports. After free trade agreements with the EU and the U.S. were enacted, exports took surprising turns. Car imports to Korea were up 23 percent in January and February, amounting to 12.9 percent of total sales, compared with only 4.9 per cent in 2009. Korea’s total exports to the EU increased by only 1 percent in the first year after the trade pact came into force, while trade from Europe to Korea rose 37 percent.

American carmakers are not under suspicion of collusion, no wonder; they did not have a big impact on Korea. Biggest American importer to the nation is Ford, up 72 percent.

Ford is against free trade agreements, especially with Japan, and calls the negotiations a “masquerade,” Reuters says. Stephen Biegun, Ford vice president of international governmental affairs, still blames the nasty Japanese for a closed market they say is wide open. There is zero import tax on cars to Japan, and even if the alleged non-tariff barriers are gone, it won’t make Biegun happy. He said change must reach into “the very bowels of the Japanese economy.” And because the Japanese will object to foreigners reaching into their bowels, Biegun will continue to complain.

Refreshing honesty comes from a surprising camp. Four dozen democratic lawmakers wrote a letter to President Barak Obama, warning against a free trade agreement with Japan. The alleged closed market found only passing mention. The lawmakers don’t worry about exports to Japan. They are worried about imports from Japan. Says the letter:

“In an industry with razor-thin profit margins, the elimination of the 2.5 percent car tariff (as well as the 25 percent truck tariff) would be a major benefit to Japan without any gain for a vital American industry, leading to more Japanese imports, less American production and fewer American jobs.”

What Detroit is REALLY worried about is a fall of the Chicken Tax. Detroit has a near monopoly on trucks, which drive its profits.

There is one part about free trade agreements automakers the world over love: A harmonization of standards. Biegun said that the cost of designing and producing according to separate EU and U.S. safety standards was between $3 billion and $6 billion, different environmental rules added a cost of $1.5-2 billion.

The United States and the European Union will begin talks on a free-trade agreement, which may take as long as two years to complete. The deal is expected to be worth some $613 billion annually, and could have some interesting implications for the auto sector.

The first and most obvious possibility is the end of import duties for passenger cars and light trucks; 2.5 percent for cars and 25 percent for trucks. Such a deal would amount to an end for the “chicken tax” for European made light trucks.

This may have an impact on the manufacturing profile for the world’s automakers as well. Mexico is currently in vogue due to low labor costs and the ability to export Mexican made cars to the United States and Europe. But with a US-EU free trade deal, there may be an extra incentive to bring some production to Europe, particularly if there’s unused capacity burning a hole in their pocket.

Also worth keeping an eye on is vehicle safety standard harmonization. The FMVSS standards vary from the UN/ECE standards used by pretty much everyone else, and this deal may bring about some kind of agreement on harmonization between the two. The FMVSS is frequently cited as a non-tariff barrier to trade by many observers. Not many would be sad to see it go.

“Community” is a nebulous buzzword here in liberal Canuckistan, with the term moving from a synonym for neighborhood, to describing everything from ethnic groups targeted by vote-hungry political parties, to an exercise in social engineering by Ivory Tower types, eager to ram pseudo-progressive initiatives through various legislative and judicial avenues. No wonder the CAW’s new “National Auto Policy”, full of old-school labor/social democrat policies, is being branded with the slogan “It’s About The Community”. Huh?

Among the “community” focused suggestions made by the CAW are

1. -Devaluing the Canadian dollar
2. -Government equity stakes in OEMs (ala Volkswagen and German’s Lower Saxony, which holds a 20 percent stake)
3. -Creating a Canadian OEM for vehicles (one suggestion would be to enter into a Chinese style joint venture agreement)
4. -Building “green cars” here, along with incentives like a Cash For Clunkers program so motorists trade their used cars in for said vehicles
5. -Suspending free trade talks with South Korea, Japan, the EU and Thailand until “one way trade” imbalances are addressed. The usual canard of Japan being a “closed market” is brought up just for good measure.

An abridged copy is available here, while the full report, if you can stomach it, is here. Some of the suggestions, like hiring more apprentices for skilled trades, aren’t so bad (Canada has a massive shortage of skilled trades workers and a generation of young people that aren’t prejudiced against taking up a trade as a career). It’s true that our living costs are higher (to the order of nearly 25 percent) and Made in Canada cars are inexplicably more expensive than they are in the United States.

Much of the report seems to concern the standard tropes of the CAW. Government intervention is the only savior, hostile to the free market and free trade and the greedy automakers. The Globe and Mail, Canada’s paper of record, dubbed the CAW’s ideas as “retrograde” and noted that the NDP, once a social democratic party beloved by unions and granola types, is moving towards the center and leaving these sorts of policies behind. The new face of NDP won’t jibe with protectionist, anti-corporate, anti-market philosophies that are anathema to most Canadians, save for the UAW and some fringe elements, despite our country’s reputation as uber-leftists.

We’ll be paying attention to the CAW’s machinations, but don’t be surprised if this gets next to no traction, given the political factors, and the big question on everyone’s mind; when is the Canadian housing bubble going to burst?

In many ways it was a strange scene. The president of Korea, speaking in a US factory that builds the replacement to a car that was once imported from Korea. The president of the United States, speaking in a factory that can only competitively build subcompact cars because of a government-ordered “innovative labor practices” that unionized workers were not able to ratify. In many ways, both President Obama and President Lee were visiting the graveyard of their ideals. Which is another way of saying, that this meeting symbolizes a new pragmatism.

American workers may not be getting paid what they once were, but they’re building cars at a profit. Korea may not be exporting as many cars to the US, but it’s putting the squeeze on Japan. Professor Kim Seung-jin of Hankuk University sums up the dynamic in the Korea Times, saying

There is no free lunch in the world… Korea should get into the U.S. market prior to Japan and China. The more we delay the less the advantage. You should know that the world is still living off the American market

This deal probably won’t boost US auto exports to Korea in the way Obama is hoping for, but it’s a reminder that US manufacturing is slowly becoming more competitive… and that our market remains an attractive place to do business. Free trade is necessarily a messy business for politicians, and protectionism might have kept Orion’s wages higher or Aveo production in Korea. But by embracing free trade, these two presidents could walk into Orion, live up to the downsides of free trade, and promise a stronger, more sustainable economic future.

It looks like North Korea’s artillery barrage on a small South Korean island had one of those famous unintended consequences: South Korea, faced by a belligerent enemy, decided to let bygones be bygones. A shell-shocked South Korea and a proud America “completed a free-trade agreement that will eliminate most tariffs on exports and solidify one of the nation’s most significant alliances in Asia,” as the New York Times praises the deal. South Korea stared down the barrels of North Korean guns, and America won the war that never was.

Don’t run down to your Hyundai dealer just yet and expect dramatic price reductions. The deal has major hurdles to pass. And at closer inspection, it looks like an oinking pig in a poke.

First, the hurdles: The deal isn’t done yet. There are still beef issues, and the devil is in the details. Once done, the deal must be approved by the legislatures of the two countries. Easier said than done. There already had been a free trade pact, hammered out in 2007. It was never ratified.

Now, for the pig in the poke. The U.S. auto industry, led by Ford, had protested loudly against the deal. The UAW agreed with the bosses. The argument was that the bad Koreans keep good American cars out of their market. Bunk. Even if South Korea would drop its import duty to zero (as the Japanese did,) there won’t be mass importation of U.S. cars to South Korea. U.S. cars are as popular in Korea as they are in Japan and Europe. As in not. The export story is a red herring to distract from the urge to stem the flood of Korean cars coming into the U.S. – and that goes especially for Korean trucks. The 2007 agreement would have required the United States to start reducing the 25 percent chicken tax on Korean trucks immediately and phase it out completely after ten years. Horrors!

The infamous chicken tax protects a huge segment of  the U.S. market – light trucks – from nasty importers. Truck-heavy Ford lobbied heavily against the agreement. They should know. Ford is an expert when it comes to the chicken tax.

Ford currently imports all of its Transit Connect models from Turkey as passenger vehicles with the requisite items, such as rear windows, rear seats and rear seatbelts. Once off the boat, rear windows are smashed and replaced with metal panels. Rear seats and seatbelts are removed. The removed parts are not even shipped back to Turkey. Too expensive. They are tossed. The process costs Ford hundreds of dollars per van, but saves thousands in taxes. Taxes that protect Ford’s domestic business.

That will remain as is for quite some time. According to a fact sheet put out by the Whitehouse, not much will change fast if the pact will ever be approved.

• Car tariffs: The 2007 agreement would have immediately eliminated U.S. tariffs on an estimated 90 percent of Korea’s auto exports, with remaining tariffs phased out by the third year of implementation. The new deal keeps the 2.5 percent tariff on Korean cars in place until the fifth year. At the same time, Korea will immediately cut its tariff on U.S. auto imports in half (from 8 percent to 4 percent), and will also ditch it in year five. U.S. 1 -  Korea nil.
• Chicken tax: The 2007 agreement would have required the United States to start reducing the 25 percent tariff on Korean trucks immediately and to get rid of it by year ten. The new deal keeps the chicken tax in place for another eight years, then it will be phased out by the tenth year. In return, South Korea must eliminate its 10 percent tariff on U.S. trucks immediately. U.S. 3 -  Korea nil.
• EVs: According to the 2007 agreement, the United States and Korea would have eliminated tariffs on electric cars and plug-in hybrids by the tenth year. The new deal requires Korea to immediately reduce its electric car tariffs from 8 percent to 4 percent. Both countries will then phase out their tariffs by the fifth year. U.S. nil -  Korea nil.
• Safety standards: According to the Whitehouse paper, „safety standards have effectively operated as a non-tariff barrier to U.S. auto exports.” Under the new deal, 25,000 cars per U.S. automaker can be imported per year to Korea, “provided they meet U.S. federal safety standards, which are among the most stringent in the world.” Apparently, U.S. safety is not as stringent as in South Korea. Safety conscious Korean customers will have to wait until late in the year and hope that the unsafe quota is exhausted. No need to worry: The United States exported a total of 7,663 cars and light trucks to South Korea in 2009, while it imported 476,857 from automakers there, according to U.S. Commerce Department figures. With 25,000 units per manufacturer coming in unmolested, that quota is a non-issue. Try pulling the same stunt when importing cars to the U.S.: “It’s up to Korean regs. That should be good enough for you.” If you want to do car business in the U.S., you need to comply with U.S. rules. Making cars compliant, and the adjunct testing and certification is expensive. The new agreement simply saves U.S. automakers certification costs. If they would truly expect to export a lot, these costs could be spread over many units. Now, the entry ticket is free. U.S. 1 -  Korea nil.
• The environment: The Whitehouse fact sheet mumbles that all U.S. autos will be considered compliant with new Korean environmental standards on fuel economy and greenhouse gas emissions, “if they achieve 119 percent of the targets in these regulations.” Huh? The DetN provides the required translation: “Obama and congressional staffers highlighted the fact that the agreement would allow all U.S. autos to be considered in compliance with new South Korean environmental standards.” The pig in the poke allows U.S. greenhouse oinkers to be sold in countries with much tougher rules. U.S. 1 -  Korea nil.
• Special Motor Vehicle Safeguard: Under the 2010 supplemental agreement, Korea has committed to add a special safeguard for motor vehicles that protects the American auto industry “from any harmful surges in Korean auto imports due to this trade agreement.”  The special auto safeguard will remain in place for 10 years beyond the full elimination of tariffs for each Korean auto product. Even more ominously, “fewer procedural steps are required to speed up the application of the safeguard when workers need faster relief.” This clause, generally overlooked by the main stream media, allows the U.S. to roll back major parts of the agreement when anyone complains.  Refer to the infamous tire vs. chickenfeet spat between the U.S. and China to see how these safeguards work. By the way, not a single additional tire was produced in the U.S. after safeguard was applied and the cheap tire business simply moved to Thailand. From there, the tires could be imported duty free until the U.S. government said “ooops” and dropped the duty free status on July 1. Thai tires are now subject to the 4 percent harmonized tariff allowed by the WTO. The same tariff the U.S.A. had charged on Chinese tires before the additional 35 percent were slapped on. Dumb and dumber. U.S. 5 -  Korea nil.
• Bad boys: The 2007 agreement  had a rule that allowed the U.S. to “snap-back” tariffs to pre-agreement levels ”if  U.S. auto business in Korea is materially affected by Korean violations of the agreement.” That was not enough. “The 2010 supplemental agreement substantially increases Korea’s obligations in a number of areas subject to this strong enforcement mechanism.” So if the slant-eyed Koreans just look askew at the U.S. auto business: Snap! U.S. 1 -  Korea nil.

From Caterpillar to The Miami Herald, all hail the trade agreement as the biggest deal since NAFTA, and as something that could bring “up to $11 billion in overall American exports and 70,000 jobs.”

Some are not as cheerful. A letter to the Wall Street Journal, dispatched by blogger Don Boudreaux, puts it best:

“Reporting on the U.S.-Korea free-trade pact, you write that “South Korea agreed to give the U.S. five years to phase out a 2.5% tariff it levies on Korean-built cars, rather than cutting the tariff immediately” (“U.S., Korea Agree on Free-Trade Pact,” Dec. 3).

In other words, South Korea agreed to allow Uncle Sam to continue to impose additional financial burdens on Americans who buy automobiles made in South Korea, for no reason other than to make life easier for Detroit.

So much for the Obama administration’s courageous refusal to allow special-interest groups (in this case, U.S. automakers and the UAW) to dictate policy – so much for our leader’s eagerness to get the policy right even if doing so means getting the politics wrong – and so much for all the ballyhoo, out of Detroit and Washington, about U.S. automakers again being world-class producers who can compete successfully with foreign automakers.“

PS: Where’s the beef? It suddenly sounds like that was also a trumped-up issue. Says Reuters:

”U.S. beef exporters have already recovered much of their lost market share in South Korea under a voluntary industry agreement to address lingering concerns about several cases of mad cow disease found in the U.S. cattle herd.

Much of the beef industry is eager to have the pact approved because it phases out a 40 percent South Korean tariff on U.S. beef and because a major competitor, Australia, is negotiating its own free trade pact with South Korea.”

The rest of the world is busy tearing down tariff borders by entering free trade agreements, such as the one between South Korea an the EU. Japan doesn’t want to stand on the sidelines and is in FTA negotiations with the EU. At the same time, the U.S. and Korea yesterday shitcanned their free trade plans. The reason? Cars. Allegedly.

In a terse statement, Reuters says that disagreement over the access of U.S. carmakers to the lucrative South Korean automobile market was the main reason the two countries failed to advance a long-stalled free trade pact. At least that’s what U.S. officials say.

“Mike Froman, an economic adviser to President Barack Obama, told reporters that there were a number of other sticking points, but autos had been the main obstacle to a deal.”

Korea’s Chosun has a completely different version: Cars are welcome. Dead cows killed the deal.

“Additional talks over a Korea-U.S. free trade agreement fell apart due to American insistence that Korea open its market to more U.S. beef exports.”

The Chosun has more choice words:

“But some points need to be made about the attitude the U.S. negotiators have taken in the talks. Korea accepted most of the U.S. demands to ease environmental and safety regulations for automobiles. That alone is enough to draw criticism from the Korean public for yielding to U.S. pressure. It shows how strong Korea’s will was to finally get the FTA on the road. But Korean officials apparently made it clear several times to their U.S. counterparts that the beef issue has to stay off the table.

The U.S. government knows full well how badly Korea was disrupted by mass protests as a result of talks with Washington over the resumption of beef imports back in 2008. Insisting that Seoul fully open its market to U.S. beef is like pushing the Korean government to pour gasoline on a fire. Yet still U.S. trade officials brought up the beef issue at the last minute, saying that the deal requires the support of lawmakers representing beef producing states. The U.S. must have legitimate reasons to do so, but it shows a lack of consideration for the negotiating partner. “

Actually, the dealbreakers were old cows. Worried about mad cow disease, Korea doesn’t want beef from cattle older than 30 months. Heifers are welcome. U.S. officials have said that exports of beef from cattle over 30 months old would amount to only about 5 percent of total beef exports. But they insisted on blowing it nonetheless.

The Chosun’s sage advice: Politicians “need to think long and hard whether the issue of beef from cattle 30 months or older is worth jettisoning the entire Korea-U.S. FTA for.”

So while Korea and the EU will trade unencumbered, the U.S. and Korea can’t agree on old cows.

What’s more, the tiff is barely a day old, and it’s already fed to the American public that the bad Koreans continue to keep good American cars out of their protected market. Mad cows? Never heard of them.

Cows or cars? Believe who you want.

Reuters reports that Japanese manufacturers are running scared from Hyundai-Kia. A combination of a rising Yen and South Korea sealing more and more free trade agreements with other countries has helped Hyundai-Kia immensely. Of course, copying Toyota’s business model of building reliable cars at affordable prices has helped greatly, too. All this momentum from South Korea is getting Japanese car executives a little bit nervous. “I think there’s a sense of crisis in the whole (Japanese) industry,” Toshiyuki Shiga, chief operating officer at Nissan Motor. “Whether you take the Free Trade Agreements or foreign exchange policy, I get the impression that South Korea is tackling things well.”

South Korea has signed over 40 free trade agreements, almost three times as many as Japan with other Asian countries. This is probably the reason why Toyota has far more foreign factories than Hyundai-Kia. South Korea has more than 40 free trade agreements with other nations. Japan has less than a third of that number, and most of those are with other Asian countries.Whilst Japanese executives have publicly poured anger on the strong yen, the government have done nothing to intervene. At the time of writing this article, the Japanese Yen is 90 to the US dollar. A long cry from January 2008 when it was nearly 110 yen to the US dollar.

Because of the burgeoning trade South Korea is enjoying, it will almost certainly have an appreciating effect on the South Korean Won, but as Reuters puts it “Analysts say the won could gain further as South Korea’s economy stages a faster recovery, but add that foreign exchange authorities in that country are unlikely to condone an unchecked rise.”. Currency manipulations? In Asia? Who are these analysts? Detroit executives?