Toyota Taking Advantage of KORUS FTA in S. Korea

Toyota Korea has been benefiting from the KORUS FTA by selling U.S.-manufactured cars in Korea. The Korean operation of the Japanese carmaker shifts its tariff savings to its headquarters in Japan.

Toyota Korea launched the Avalon Hybrid sedan in South Korea last month. According to industry sources, the tariff exemption applied to that model is approximately 2.54 million won (US$2,280) per unit. The model’s total taxable value is about US$28,200. The model is manufactured in Kentucky and a zero tariff is applied to it according to the KORUS FTA, although an 8% tariff would be applied if it was imported from Japan.

In the past, Toyota Korea used to release new models in South Korea by importing vehicles from Japan. More recently, however, it changed its policy to enjoy tariff benefits. The seventh-generation Toyota Camry sold in South Korea from 2011 to September last year was imported from the United States. The sales volume was 4,115 units in 2016, leading to a tariff benefit of 8.2 billion won. Last year, it sold 3,523 units and earned tariff savings of seven billion won. For reference, Toyota Korea’s net profit was 35.5 billion won in 2017. Amid criticism that it was taking advantage of the KORUS FTA, the company began to import the eighth-generation Camry from Japan in October last year. However, the Avalon Hybrid is from the U.S. again.

With the company’s tariff benefits amounting to 20% of its annual net profit, industry watchers are criticizing Toyota Korea for profit transfer as well. According to the Financial Supervisory Service, Toyota Korea’s sales totaled 1.049 trillion won from April 2017 to March 2018, up 22% from a year earlier, and its current net income hit an all-time high of 35.5 billion won during the same period. The company paid the headquarters 31.5 billion won in dividends with the only exception of four billion won in deficit for the previous fiscal year. Toyota Korea was established in 2000 and its dividend payout ratio has been 100% with the only exception of 2009.