Deal in FTA?

The Chevrolet Cruze made its debut in South Korea in January this year. It is currently enjoying little popularity in the market.
The Chevrolet Cruze made its debut in South Korea in January this year. It is currently enjoying little popularity in the market.

 

On October 20, GM shut down its plants in Australia after 69 years of operation. Rumors are circulating that the same is likely to happen in the near future in South Korea.

The crisis of GM Korea is closely related to GM’s withdrawal from the European and Russian markets. More than 70% of GM Korea’s profits are derived from exports. GM Korea’s finished product supply and CKD supply dropped from 630,000 to 420,000 and from 1.18 million to 660,000 units from 2013 to last year, respectively. Reuters recently reported that GM Korea’s annual production volume is likely to drop to 365,000 units in or around 2025.

Some in the industry, however, say GM’s withdrawal from South Korea will not be easy given that the South Korean automobile market has an annual volume of approximately 200,000 vehicles and GM Korea is a subsidiary capable of producing at least 500,000 vehicles a year. “GM Korea is playing an important role in GM in production, design and so on,” one of them mentioned, adding, “Without GM Korea, GM’s standing in the Asia-Pacific market excluding China cannot be guaranteed.”

It is also predicted that GM will make use of GM Korea during FTA renegotiations to obtain some assistance for restructuring and deregulation from the South Korean government. When it comes to the deregulation part, the company is likely to call for the relaxation of vehicle safety standards and environmental regulations in particular.

According to the current KORUS FTA, U.S. cars complying with the vehicle safety standards of the U.S. can be imported into South Korea without complying with those of South Korea if U.S. automakers’ annual sales volume in South Korea is 25,000 units or less. GM seems to be aiming to annul the clause so more U.S. cars can be imported with greater ease into South Korea.

U.S. carmakers have called for the relaxation of greenhouse gas emission regulations and fuel economy standards, too. According to the KORUS FTA, GM, Ford and PCA are classified, based on their 2009 sales volumes, into the group of small-scale manufacturers with a carbon dioxide emission allowance of 142 g/km whereas the upper limit applied to South Korean automakers is 123 g/km. However, the gap is scheduled to be reduced to 8% and the reference year is scheduled to be replaced in 2020. The reference value in the U.S. is 113 g/km for the year of 2020 and those in South Korea are 97 g/km and 105 g/km for the same period, which means U.S. cars have to be equipped with devices for carbon dioxide emission reduction to be exported to the South Korean market.

 

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