South Korean Trade Minister Kim Hyun-chong announced on March 26 that the U.S. government’s additional 25% tariff will not be applied to 2.68 million tons of South Korean steel, which is equivalent to 74% of the steel South Korea exported to the U.S. last year. Earlier, American steel companies demanded that the ratio be 63%.
The partial import duty exemption is likely to lead to some damage to South Korean steel companies although the ratio is higher than what American steel companies demanded. Specifically, the quota to be applied to steel sheets is 111% of that of the previous year whereas the quota to be applied to steel pipes such as oil country tubular goods is 53%. According to industry sources, steel pipe exports from South Korea to the United States are estimated to decrease by US$800 million a year given that the export volume totaled US$1.6 billion last year.
The U.S. government exempted the import duty in return for additional opening of the South Korean automobile market. Still, the South Korean automotive industry is unlikely to be affected for the time being. This is because no U.S. automaker is currently selling more than 50,000 cars a year in South Korea although the number of American vehicles made in the U.S., complying with U.S. vehicle safety standards and allowed to be exported to South Korea without safety inspection in South Korea has been doubled to 50,000 a year. According to the Korea Automobile Importers & Distributors Association, a total of 20,019 American vehicles were sold in the South Korean market in 2017 to account for 8.6% of the total imported car sales in it during the same period.
The other results of KORUS FTA renegotiation include tariff elimination starting from not 2021 but 2041 regarding pick-up trucks. This also does not affect South Korean automakers because they are currently exporting no pick-up truck to the United States. Nonetheless, those in the industry pointed out that the results are likely to hinder South Korean carmakers’ business in the U.S. in the long term. “The automobile sector is the only one that had to make a concession during each of the two KORUS FTA revisions following its implementation in 2007,” said an anonymous expert.
The loosened safety inspection regulations are likely to result in an increase in German and Japanese car exports from the U.S. to South Korea. At present, vehicles manufactured in the United States and exported to South Korea include Mercedes-Benz GLE, GLE Coupe and GLS and Toyota Sienna. The number of such vehicles totaled 8,323 for BMW, 4,624 for Mercedes-Benz, 6,197 for Nissan and 4,596 for Toyota in 2017.
“The South Korean automotive industry is currently suffering from a decline in production and exports, restructuring in the form of GM plant shutdown in Gunsan, sluggish sales in China attributable to China’s THAAD retaliation and ordinary wage and working hour issues,” said an industry source, adding, “The South Korean government’s concession in the industry may affect the national economy as a whole in the long term given such adverse conditions and the nature of the industry closely related to lots of other industries.”