Why Detroit Is Chicken About Free Trade Agreements. And Why Korea Hates Them Too Now

Bertel Schmitt
by Bertel Schmitt

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.

Imports to Korea Jan/Feb 2013Jan/Feb%ShareVolkswagen GRP6,84629.9%BMW GRP6,47628.3%Mercedes-Benz3,34314.6%Totota GRP1,6667.3%Ford1,0304.5%Honda8663.8%Fiat-Chrysler7433.2%JLR GRP6212.7%Nissan GRP5852.6%PSA GRP4441.9%Volvo2000.9%Cadillac640.3%Mitsubishi170.1%Subaru00.0%Grand-Total22,901100.0%

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.

Bertel Schmitt
Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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  • DenverMike DenverMike on Mar 18, 2013

    @Big Al from Oz - Right or wrong, the US has been busy building autos that US consumers demand. Our cheap fuel and long commutes demand comfortable autos and this was true long before CAFE. It continued to shaped the US auto industry afterwards. CAFE inspired and brought on the mini-truck craze and eventually mini-trucks grew to near full-size proportions. And with full-size MPG and MSRP, no less! By this time, CAFE left it up to the consumer to choose as they're all considered "Light Trucks" now. That's exactly what killed the once thriving American mid-size truck class, including our domestic mid-size trucks. Natural selection at its finest. You have 11 mid-size trucks to choose from, but that doesn't mean you REALLY have a "choice", now does it? Your Australian truck market, just like the US', is dictated by fuel prices and the potential economy of base stripper global mid-size trucks for those that want them. Obviously, fully loaded and decked out global mid-size trucks are pigs in comparison to base stripper mid-size, and depending how they're equipped and used, they get WORSE MPG than our full-size. But this isn't about stripper base global mid-size trucks even though those are the one's you hold against and compare to our full-size. If we're not comparing equal or similar trucks, we're just talking in circles. And you've yet to substantiate the "30 MPG" of global mid-size trucks & SUVs. A lot is lost in translation... The Mahindra got 21 MPG when it got to America. Then the Mahindra, which is one of your 11 choices, gets similar MPG to the rest of your mid-sizers.. So what gives?

    • See 4 previous
    • Niky Niky on Mar 20, 2013

      @Big Al from Oz With direct injection, yes. But gasoline direct injection is still catching up. When it does, I wager we'll see many of the same benefits as diesel direct injection.

  • Danio3834 Danio3834 on Mar 19, 2013

    I'm not convinced elimination of the chicken tax would affect the truck market much. Foreign makers have made their own attempts at penetrating the US truck market and haven't made much of an impact except for compact SUVs. The trucks they do sell here are already built in North America and avoid this tax and NA (Mexico incl.) is already pretty competitive place to build these vehicles in comparison to most of the alternatives. Even if the tax never existed, it's doubtful they would bother to make a competitive US trucks and export them to the states from somewhere else as trucks that are truly successful in the US really aren't global platforms.

  • Bd2 Probably too late to do anything about it for the launch, but Kia should plan on doing an extensive refresh of the front fascia (the earlier, the better) as the design looks really ungainly.
  • Namesakeone Since I include SUVs and minivans as trucks, I really cannot think of a brand that is truly truckless. MG maybe?
  • Sobhuza Trooper Subaru, they were almost there with the BRAT. --On a lighter note, where the hell is my Cooper Works Mini truck?
  • Mike Evs do suck, though. I mean, they really do.
  • Steve Biro I don’t care what brand but it needs to be a compact two-door with an ICE, traditional parallel hybrid or both. A manual transmission option would be nice but I don’t expect it - especially with a hybrid. Don’t show me an EV.
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