The U.S. government is urging South Korean automakers to increase their auto parts production in the United States, according to the recent delegation to the United States of the ruling Minju Party, including party leader Choo Mi-ae.
Likewise, the U.S. government is trying to incorporate a ratio of auto parts produced in the U.S., Canada and Mexico of at least 85% and a ratio of auto parts procured from the U.S. of at least 50% as new conditions for the tariff-free export of automobiles to the U.S. after manufacturing in Mexico and Canada during the ongoing negotiations for NAFTA revision. At present, automobiles manufactured in Mexico or Canada can be exported to the U.S. without tariffs if at least 62.5% of the parts of the automobiles are produced in the NAFTA members. This is to prevent the tariff-free export of auto parts manufactured in a third country to the U.S.
The U.S. government is likely to try to incorporate a similar clause into the KORUS FTA. According to the National Highway Traffic Safety Administration (NHTSA), the ratio of U.S.-produced auto parts stands at 0% to 3% when it comes to Hyundai cars exported from South Korea to the United States whereas the ratio is as high as 26% to 51% when it comes to Hyundai cars manufactured in the United States.
If the clause becomes effective, Hyundai Motor Company and Kia Motors have to import more parts from the United States in order to export their cars to the United States, and then the sales of South Korean companies supplying their products to the Hyundai Motor Group can be negatively affected.
Auto parts are the second-largest export item, behind automobiles, for South Korea in its trade with the United States and most of the auto parts are supplied to Hyundai’s and Kia’s manufacturing facilities in the United States. Last year, South Korea’s auto parts exports to the United States totaled US$6.75 billion and accounted for 10.2% of South Korea’s total exports to the United States.
In the meantime, the Korea International Trade Association recently announced that South Korea’s automobile exports to the United States increased by only US$2 million from a year ago to US$11.259 billion for the first nine months of this year. Besides, South Korea’s auto parts exports to the United States fell 2.8% last year and 13.4% during the three quarters. Meanwhile, South Korea’s automobile imports from the United States increased 4.6% to US$1.35 billion.