Well, we’ve heard rumors of this before, but according to today’s Korean Herald, U.S. and Korean negotiators in Columbia, Maryland, have announced that they have overcome the remaining issues in the KORUS FTA and will send the updated agreement to their respective governments for approval.
Looks like smiles all around.
No details were announced regarding the apparent changes and compromises. According to yesterday’s WSJ, the remaining issues centered around extending the tariffs on Korean autos exported to the U.S. The original KORUS FTA had the 2.5% tariff ending immediately, but FTA opponents wanted to see that tariff extend for as long as 10 years. A compromise was in the works to just have that tariff extend for 4-5 years.
Hopefully, there will be more details forthcoming.
Update 1: The Yonhap also says an agreement was reached. It appears to imply that the compromise centered around extending the 2.5% car tariff in exchange from some agricultural concessions from the Americans.
Update 2: The American press appears to be using more conservative language (i.e. “substantial progress” vs. “deal reached”). Here is a Reuters link.
The NYT says:
But an official with a private-sector organization that was briefed on the agreement said that the deal came together after South Korea agreed to give the United States five years to phase out a 2.5 percent tariff on Korean-built cars, rather than ending the tariff immediately.
Update 3: Ah, leave it to the Detroit Free Press and their army of auto insiders to come up with the most comprehensive list of concessions that the U.S. auto industry has been able to win from the last round of negotiations:
• Saying Korean safety standards for imports operated as a trade barrier, the new agreement allows for 25,000 cars per U.S. automaker – nearly four times the amount included in the 2007 deal – to be imported into South Korea provided they meet American safety standards.
• All U.S. autos will be considered compliant with new Korean environmental standards on fuel economy and greenhouse gas emissions, provided they achieve 119% of that country’s regulatory targets.
• Current taxes based on engine size – which hurt American imports – will be streamlined and automakers will be give a year’s time to adjust to any new regulations.
• While the 2007 agreement would have immediately eliminated U.S. tariffs on 90% of South Korea’s auto exports with the remainder to be phased by the third year of implementation, the new agreeement allows a 2.5% U.S. tariff to remain in place until the fifth year. Korea will immediately cut its tariff on U.S. auto imports in half – from 8% to 4% — and eliminate it in the fifth year.
• The U.S. may retain its 25% truck tariff for eight years but must phase it out in 10 years; Korea must eliminate its 10% tariff on U.S. trucks immediately.
• South Korea must cut electric car tariffs from 10% to 4% immediately, with both countries phasing out those tariffs in five years.
• South Korea agrees to extend for 10 years beyond the phasing out of tariffs an safeguard clause ensuring the American auto industry will not suffer from any harmful surges in Korean imports.
More to come, I’m sure.
{ 46 comments… read them below or add one }
Are they smiling and squeezing too hard on the handshake?
In other words, they won a concession (preferential discriminatory treatment really) to avoid stricter Korean environmental laws and taxes based on engine size. And they expect more cars to be sold in Korea? Good luck. This makes little difference to Korean consumers unless Detroit vamps up their poor image and sell cars that Koreans want to drive.
Great news. Now will Republicans (and paleo-Dems) let this be ratified?
It looks like and feels like it will pass. There seems to be a new urgency on both sides, after North Korea and China’s shinanigans. But looking at the deals on auto, I really have to wonder if it’s Free Trade, and not Managed Trade. Look at the terms:
“South Korea will immediately cut its tariff on American autos to 4 percent from 8 percent, with the remainder eliminated over five years. Under the 2007 deal, the tariff would have ended immediately.”
“It includes a safeguard, specific to the auto industry, that would allow tariffs to be reimposed if there were a sudden, unanticipated surge in Korean auto imports as a consequence of the agreement.”
This could be just as great as NAFTA for Americans.
from the AP via Yahoo: “The U.S. and South Korea have reached an agreement on America’s largest trade pact in more than a decade, a highly coveted deal the Obama administration hopes will boost U.S. exports and create tens of thousands of jobs at home.”
Hahahahahahahahahaha!
from the AP (cont.): “South Korea is agreeing to allow the U.S. to lift a 2.5 percent tariff on Korean cars in five years, instead of cutting the tariff immediately. The agreement also allows each U.S. automaker to export 25,000 cars to South Korea as long as they meet U.S. federal safety standards and allows the U.S. to continue a 25 percent tariff on trucks for eight years and then phase it out by the 10th year. South Korea would be required to eliminate its 10 percent tariff on U.S. trucks immediately.”
Edited by WeikuBoy to reflect the fact that Korea will NEVER open its market and Koreans will ALWAYS find an excuse not to buy American: “South Korea is agreeing to allow the U.S. to lift a 2.5 percent tariff on Korean cars in five years, instead of cutting the tariff immediately.
The agreement also allows each U.S. automaker to export 25,000 cars to South Korea as long as they meet U.S. federal safety standards and allows the U.S. to continue a 25 percent tariff on trucks for eight years and then phase it out by the 10th year. South Korea would be required to eliminate its 10 percent tariff on U.S. trucks immediately.“Nice work, Korea Inc. Korean cars will get cheaper in the U.S., while U.S. cars will still be excluded from the Korean market because they are too big or too dirty or they are crap or they’re just not right for Korea or Koreans feel uncomfortable with foreign things or Koreans just feel strongly that buying Korean is a matter of national survival.
Now that’s what the American people can call a win-win!
#5, how does Korean cars get cheaper in the US, when the tariffs on Korean cars aren’t going to be eliminated for 5 years? How’s it going to get cheaper when already, S.Korean makers provide thousands of American jobs by making cars in America versus Fords and GM’s who make cars in Mexico?
And your last statement has already laid the trap for Korea, if there’s no vast improvement in US auto sales in Korea.
Then again, the same president(s) who “hopes” this bilateral govt micromanaged trade deal will create jobs in the U.S. also just proclaimed that NATO’s efforts in Afghanistan are succeeding.
Through the looking-glass!
#7, let’s see how the US cars do, now that $26,000 entry level Ford Taurus that they’ve been unsuccessfully trying to unload, has now gotten cheaper and closer towards the price of a $24,000 Hyundai Sonata. Let’s see how US cars do, now that their prices are shaved off couple of thousands of dollars to undercut German and Japanese. No more excuses, but I already see that your making excuses already.
Let’s look the suspicious timeline….Korea says no to US at G20, Obama sent home with tail between legs; NK quite conveniently attacks SK; US and SK hold massive drills; NK despite all its threats of dire consequences leading up to the drills, keeps quiet during the drills; SK and US quickly go back to FTA talks; FTA rammed through within a week. Something smells like rot.
http://www.activistpost.com/2010/12/us-south-korean-fta-rammed-through.html
You got anything better than a radical anti-globalist web site?
The FTA also contains a great deal of IP-copyright issues for the U.S. and notably promotes the interests of the American media companies. Treaties like this are how American media companies influence foreign countries and their laws from the outside. Here is another recent example, courtesy of wikileaks, where the industry basically revised the copyright law for Spain:
http://www.boingboing.net/2010/12/03/wikileaks-cables-rev.html
This may not seem important but, through a treaty like this, the current and any future administration can effectively use IP-copyright issues to shutdown almost any site without judicial review or due process. They essentially can use this to do whatever they want, regardless of existing Korean laws. This can be one tool to use when current defamation laws may take too long to apply and can be done anonymously as a simply shutdown order from the Ministry of Culture.
I still would like to know how identically equipped Equus 460s sell for USD60,000 in the US and KRW130,000,000 in Korea.
@cm you got anything better than mainstream media?
There are some senators who are complaining that this FTA is too lax on foreign labor standards. I’ve no ideal what they are particularly not satisfied with Korean labor standards that they think it effects the FTA negatively. Does anyone know? Korea seems to be lumped together with China, and if the US’s trade problems continue with China, South Korea’s FTA, however successful it may or not become, will be blamed for all the ills with China as well.
I looked at the Washington Post comments, and this is the kind of ignorant comments I frequently see there and else where, which makes this deal so much more difficult to swallow:
—————–
This is a lie…Look at
http://www.worldsalaries.org/korea.shtml
The average income is around $ 2,070 a year. No way under the sun can they afford to eat at McDonalds a year much less buy American. A lie to buy cheap products and wipe more American jobs out…
——————
http://www.washingtonpost.com/wp-dyn/content/article/2010/12/03/AR2010120304293_Comments.html#
at a time of high unemployment, it’s good to see korea will be creating jobs for americans desperate for work. thank you, korea.
@Sperwer (#12)… I believe the terms is, “What the market will bear.” Hyundai can charage that much for an Equus in Korea b/c people will pay that much for it. When people stop paying that much, Hyundai will stop charging that much. It happened with the Genesis sedan in Korea. Hyundai had to lower the price by about 5,000,000 KRW because the Genesis had become more expensive than a comperable Mercedes-Benz, and people were starting to buy the MB.
However, to be clear, in Korea, an the VS460 Prestige Equus with every available option is 114,900,000 KRW. In the US, the Equus Ultimate is $65,400 USD and I’m sure Hyunda will lose money (a lot of money) on every single one of them that they sell! It’s a marketing ploy to build Hyundai’s brand image. This is sometimes called a “halo car” in automotive circles.
Interestingly, the most expensive Equus a person can buy in Korea, the VL500 Prestige, tops out at an eye-popping 150,000,000 KRW!! Yikes!
Have you driven a Ford lately? The 2011 Ford Mustang is a lot of car for the money and in the States a powerful Mustang starts at just $24,000. And by the way, Ford’s 305-horsepower V6 gets 31 MPG on the highway.
@Brendon Carr (#17):
I totally agree, the new Fords are very good! But I just don’t see a big market for their cars in Korea. Especially the Mustang. Even Hyundai can only sell about 150 Genesis Coupes per month in Korea.
Of course it does, but then the issues become: (i) generally, how market demand is shaped – in this case illicitly, by government interference – in this case tariff and non-tariff barriers, each of which increases the costs of imported goods – the transparent purpose of which is to advantage domestic producers at the expense of both foreign producers and domestic consumers – something this so-called “FTA” does nothing to address, fundamentally; and (ii) , if as you surmise Hyundai is going to make a loss on each vehicle sold, is Korea “dumping” the Equus in the U.S.
Wholesome Americans no longer have to live in fear of the Bongo truck.
United Auto Weenies:
http://cafehayek.com/2010/12/united-auto-weenies.html
Don’t think that this deal will easily pass the Korean lawmakers soon. There are already many grumblings that this deal is a `퍼주기 협상’ (keep giving it all away agreement) for Korea. The US gets to keep their tariffs on Korean cars and trucks, while Korea must eliminate theirs. Auto is Korea’s single biggest important export item to the United States for Korea. Coupled with the fact that now the US has a huge advantage over Korea, in agricultural, financial, engineering, and legal services, it gives a huge advantage to the United States at the expense of Korean auto industry. I think there’s a storm brewing and this thing may get nasty.
I’m sure this deal will also be a hard sell in the States too. FTA deals are out of fashion over there, and no matter if it becomes successful or not, it will just eventually become a scapegoat for all the America’s trade problems with China.
They should have just let this fire die, instead of sparking it again.
@Sperwer (#19)… I know only a little about cars, and less than that about economics, so you’ve first point about the shaping of markets eludes me.
The second point is an interesting one. I don’t know the legal definition of dumping, but in the numbers that Hyundai is importing the Equus to the states, I would be surprised if they could be charged with dumping it.
Ford ranks 12th among the foreign carmakers in sales for the month of November, with 215 cars registered. That’s not just the Mustang, but rather all of Ford’s models offered in Korea — the Taurus, Explorer, Mustang, and Escape plus the Lincoln Town Car and other luxury vehicles. Buying a Ford in Korea means you get to drive a rare and exotic car.
The car I’m currently intrigued with is the Chevy Volt. It’s Motor Trend’s Car of the Year and actually has what looks like great design on both interior and exterior. It’s electric, with a claim that the ‘average’ commuter can charge for the run to work and back for $1.50 a day. It is coming in at MSRP of around $41,000 , though, quite high. I wonder if Koreans would go for an electric car? I wonder how many Americans will go for the Volt too, and at first glance it seems to me it will make quite a splash.
Any word on Korea’s prohibition of electric vehicles on roads with a greater than 60 kilometer per hour speed limit? They still have those Electric Car Forbidden signs on Korea’s highways?
@ 22 – keep in mind that Korea was able keep rice out of the FTA. The US received no such exclusion. But I do agree with that the agreement ought to be scrapped. No reason to do deals with those who don’t respect ‘em.
@Brendon Carr (#24)
Rare and exotic; nice spin! How long has your firm been handling the Ford account?
#25, the Volt maybe one of those cars that Koreans may want to drive since it’s perfectly suited for the Korean driving conditions. That’s just my opinion though.
“I still would like to know how identically equipped Equus 460s sell for USD60,000 in the US and KRW130,000,000 in Korea.”
The catch is that they AREN’T similarly equipped. The more expensive Korean model has that ~60,000,000 hood ornament pimping up the hood. I believe they dropped it from the USA model.
LOL.
To my knowledge it’s Lee & Ko doing the Ford work in Korea. When I worked at Lee & Ko — waaay back when — they had represented Chrysler for a long time, but then Ford was looking at bidding for Daewoo Motor and Lee & Ko dumped Chrysler in favor of the more-valuable client. Recently I had a meeting with a snotty Lee & Ko associate who just had to let us know she was in meetings in Detroit the week before. That makes me think Ford’s still on board with them.
However, ol’ Brendon’s got another carmaker in the stable anyway, a European maker, and Brendon’s client sells 10 times as many cars in Korea as Ford does. It was with executives of this company, while I was arranging a test drive of one of their models, that we discussed just how impressive the Ford Mustang is. If car guys from a competitor say it’s a great car, I have to believe them.
I think the KORUS FTA and the EU-ROK FTA will shake up the local car market quite a bit, to the advantage of both Korean consumers and the Korean carmakers who will have to up their game some more. Right now imports make up about 7% of the Korean market as compared to 45% in the United States. If the reports on engine tax and emissions are correct, that will redound to the benefit of makers like Ford who pack a large engine into that Mustang.
These days I’m interested in a nice convertible to take on country drives. The Mustang looks to fit the ticket. Maybe you’re right — maybe I ought to give the nice folks at Ford Motor Company a call to see how happy they are with Lee & Ko.
No need to do deals with those who don’t respect them.’ soldout
soldout is British, the experts in doublespeak; just ask the Indians.
Can someone explain the new engine size tax rules?
Will the tax rate on large sized engines be reduced? Will the tax rates on large engined Korean cars go down? I’d really like more domestic V8s.
Wow; stonehead and I agree on something: the US shouldn’t do deals with ever double-dealing, ever re-negotiating done deals (not just preliminary agreements in principle),and duplicitous Korea Inc.
Would be a nice point Sperwer, if in this case it wasn’t the US that were reneging on the deal.
You neglected to note the important, and dispositive qualification, in my post; the FTA was not a done deal, on either side, as the agreement in principle was not agreed by the only parties competent to do so on either side.
“Can someone explain the new engine size tax rules?
Will the tax rate on large sized engines be reduced? ”
My understanding is that the tax rate on large sized engines (2 liters or larger) MADE IN AMERICA (only) will be eliminated. All others, Made in Korea, Europe, and Japan, stays as is. I could be wrong though. If the engine consumption tax is eliminated altogether, then it is really unfortunate for Korea’s environment and her already terrible propensity to drive larger cars when the nation can’t afford to. Yeah, V8′s are what exactly Korea who don’t produce a drop of oil, needs right now.
It’s the day when this type of lies peddled (below link) won out (for now). But I’m sure these guys are still not happy.
http://www.uaw.org/articles/make-korea-free-trade-pact-fair-americans
“You neglected to note the important, and dispositive qualification, in my post;”
No, I just don’t consider what is normally the final rubber stamping by the legislature of an agreement made by senior officials and representatives given authority to negotiate same to be a “preliminary agreement in principle” with as little weight as an MOU
Well, then, I guess we have different views regarding the nature of representative government and the requirements of law (being the authoritative source of rules regarding when a contract has been formed).
but other than that I’m in general agreement that it is more normally the opposite way round!
@32 – Actually I prefer “forked tongue”. It’s much more visually descriptive.
Thanks for taking a break from your busy schedule. Now get back to wa wa washing your dwa dwa drawers in the sa sa sink, pa pa pa pawi.
@Andrew (#32) and #cw (#37)
Information about proposed changes to Korean tax law regarding engine displacement can be found here:
http://www.koreauspartnership.org/facts/autos.htm
It doesn’t mention anything about being specific to engines in American cars only and I would be very surprised if the changes turned out to apply to American-made cars only, especially in light of the recent KOR-EU FTA.
As I understand it, Korea currently has five tax brackets based on engine displacement: under 1,000cc, 1001cc to 1,600cc, 1,601cc to 2,000cc, 2,001cc to 2,500cc, and over 2,500cc.
According to the proposed KORUS FTA, these would be streamlined to three, but there is no mention of how they will be streamlined.
Also cw, bigger doesn’t always mean worse for the environment. Hyundai’s 2,000cc MPFI enginge and 2,400 GDI engine are rated exactly the same for fuel economy (13.0 l/km) and CO2 emissions (180g/km), despite the 2,400-equipped car weighing 50 kg more.
In addition, comparing Hyundai’s 1.4 and 1.6 engines in the new Accent, the 1.6 is actually rated better than the 1.4 in both fuel economy and CO2 emissions, despite being 20kg heavier.
I really wonder if this FTA will increase any jobs for both countries. The tariffs for the US cars have been drastically lowered, but the EU automakers also have the same deal. So in effect, EU and the US deals cancel each other out. This is also true in other areas, not just auto. With this deal, the US just earned a right to remain price competitive vis a vie the European products. So they’re basically back to square one. If the US doesn’t sign the FTA and the EU does, then the US products would be out competed on price alone. Korea on the other hand, gave up a lot in auto. Korea can’t sell anymore cars to the US than they’re selling now, because it will trigger a safeguard that would put back the tariffs. The only benefits that I see for Korean car manufacturers is that auto parts destined to Hyundai/KIA plants in the US will be exempted from tariffs.
cm – a couple of points
Re. #8 – The starting price on the Taurus in Korea is KRW 38 million. The underlying reasons for the higher price go beyond an 8% tax, slightly better standard equipment and the exchange rate. http://auto.naver.com/car/main.nhn?yearsId=10111
Re. #14 – only the top number is on an annual basis. The industry-by-industry salaries are monthly.
This article shows the side effects of renegotiation with the US. Now the other countries are going to line up and demand their own renegotiations with Korea, and there maybe no end to it.
http://koreatimes.co.kr/www/news/biz/2010/12/123_77553.html
What goes around, comes around!
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