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International Business: SOUTH KOREA
NOW DETROIT'S HEAVY ARTILLERY IS TRAINED ON SEOUL
Now that a truce has been declared in the U.S. fight to crack Japan's auto market, Detroit's Big Three carmakers have found a new battleground: South Korea, the world's fastest-growing car market and one of the most closed. They're urging the Clinton Administration to get tough if Seoul fails to make concessions in Sept. 19-20 talks in Washington.
The dispute isn't just about wresting a bigger part of the $17.5 billion Korean market. U.S. policymakers feel bound to challenge other Asian nations copying Tokyo's moves. "Like Japan, Korea is using its sheltered domestic market as an export-launching pad," says one official. "We need to send a message to the rest of Asia that we will not tolerate such unfair competition."
Detroit wants to see the Koreans named in a "Super 301" case, which would trigger sanctions if there is no progress within a year. U.S. Trade Representative Mickey Kantor must decide by Sept. 27 whether to put Korea on a Super 301 priority list.
Korea is miles ahead of Japan when it comes to sheltering home-grown auto makers. Seoul's anti-import manual starts with an 8% tariff and a variety of taxes that boost the sticker price of Ford's $18,000 Mercury Sable to $40,000. Add in financing restrictions and an antiforeign bias periodically whipped up by the government, and it's easy to see why imports accounted for a measly 0.3% of Korea's 1.1 million domestic car sales last year. In contrast, Korea exported nearly 650,000 cars.
LOW OPINION. But American officials must be careful. After years of deficits, the U.S. ran a $1.5 billion trade surplus with Korea in the first six months of 1995, exporting aircraft, high-tech equipment, and grain. A trade fracas would only worsen already-souring Korean sentiment toward the U.S. A U.S. Information Agency poll reports that for the first time in 12 years, a majority of Koreans have an unfavorable opinion of the U.S.--and 75% cited trade pressure as a main reason for disliking America.
In addition to autos, Korea faces three other possible Super 301 actions. U.S. orange growers are challenging its foreign-citrus licensing system, which shuts out all but the lowest-grade oranges. California almond growers fume over customs rules that keep shipments on Korean docks for up to eight weeks. Medical device makers are angry about regulations requiring foreign companies to reveal proprietary information.
But Korea's auto policy is the only one likely to make the USTR list. The market has allowed car companies to amass a domestic profits war chest that is funding a huge boost in production. Before the end of the decade, Korea's Daewoo, Hyundai, and Kia will be building 5 million cars and exporting 3 million of them. U.S. auto makers fear Korea will soon be dumping rock-bottom-priced cars in Asia, Eastern Europe, and Latin America, where they want to compete, too. "Korea can cause a bigger problem for world trade than Japan has," says Ford Motor Co. Chairman and CEO Alexander J. Trotman.
Detroit wants Korea to reduce its import tariff, eliminate taxes on cars with larger engines, junk some safety standards, and speed up liberalization of curbs on foreign participation in auto financing. So far, it is getting rhetorical support from Europe, which opposed America's tough tactics in the U.S.-Japan auto dispute. "The Koreans...cannot keep their markets closed while they go gallivanting around the world," says James Rosenstein, spokesman for the Association of European Automobile Manufacturers.
Officials in Seoul counter that they are slowly opening up their auto market. Since 1994, Korea has cut its import tariff from 10% to 8% and permitted foreign companies to own up to 49% of consumer auto-financing ventures. Additional steps are being readied, says Chung Seung-Il, an official in the International Trade & Industry Ministry.
That may not be enough. "The Koreans always move. The question is: How far?" says one U.S. official. If Seoul falls short, look for Washington to turn up the heat. Polls show confrontational trade tactics are a political winner for President Clinton. His foreign policy mavens advise avoiding flaps with Japan and China. That makes Korea all the more tempting a target. By Amy Borrus in Washington, with Keith Naughton in Detroit, and Laxmi Nakarmi in Seoul