AUTOMOBILES AND MOTORCYCLES
Overview Over the last year there has been slow, but measurable progress in market access for imported automobiles. Nonetheless, the import market share of Korea’s total automotive market is still only 1.6 percent, and many long-term and significant barriers in the areas of consumer perception, taxation and tariffs, and standards remain to be resolved. In mutual recognition of the need to address and to resolve the many formidable market access barriers to imports of automobiles into Korea, the U.S. and Korean governments signed a memorandum of understanding (MOU) in 1998. Implementation of the MOU through regular, government-togovernment consultations over the past five years has led to the resolution of a number of standards issues and to some measurable improvement in what is, perhaps, the most complex, long-term issue—negative consumer perceptions concerning imported vehicles. Over the last year, the automotive trade imbalance has been improved, but there exist much room for improvement with Korean imports to the United States, reaching 556,925 vehicles (YTD Oct.), while imports from the United States to South Korea amounted to only 3,215 (YTD Nov.), and total imports 17,529 (YTD. Nov.). By the end of the year, while sales of Korea-made automobiles in the U.S. import market reached 536,925 vehicles (YTD Oct.), the number of foreign automobiles sold in Korea reached only 17,529 units (YTD Nov.), representing only 1.6 percent of the Korean market demand for passenger vehicles in 2003. Although the number of foreign vehicles sold in the Korean market in 2003 increased from a total of only 14,662 units sold in 2002 (YTD Nov.), import market share in units actually only increased from 1.1 percent in 2002 to 1.6 percent in 2003 (YTD Nov.). While the share of U.S. nameplates represented only 3,215 units or only 0.23 percent of the market, Korean exports to the United States in 2003 (YTD Sep) exceeded 556,925 units. The Korean Government’s Critical Role in Influencing Consumer Perceptions In 2003 there continued to be gradual, but steady improvement in Koreans’ perceptions of imported vehicles. The Korean government took some proactive measures to improve consumer perception by putting more imported cars on Korean roads. Specifically, the National Police Agency procured another 50 imported patrol cars for its fleet after its initial purchase of 50 imported cars in 2002. U.S. manufacturers participated in the 2003 Import Motor Show and the 2003 Busan Motor Show, both of which drew large audiences of interested Korean consumers. The Korean government also made a strong, public showing of its support for the Korea Import Motor Show by having four ministers participate in the show. Despite these efforts, the import market share in Korea in 2003 was still only 1.8 percent, a figure that simply does not reflect the manufacturers’ efforts and investments in marketing. It is therefore requested that the Korean government continue to take all proactive measures possible to achieve a level of progress in consumer perception that can be demonstrated by true inroads in import market share. It must also be underscored that the single most important action the Korean
government should take as soon as possible to improve perception is the elimination or reduction to 2.5 percent of the current 8 percent tariff on imported vehicles. No other action will have the positive, multiple, and immediate effect of reducing the price disadvantage for foreign vehicles in comparison to domestic vehicles, while also sending an unequivocally positive message to all Koreans to buy imported cars. Since 2002, AMCHAM and the Korean Automobile Manufacturers Association (KAMA) have held regular meetings to discuss ways in which the two organizations may be able to cooperate to achieve progress in consumer perception, including future trade shows featuring both domestic and imported vehicles. Plans are now underway to participate in a joint motor show in Seoul with KAMA in 2005. Recommendations: Eliminate entirely or, at minimum, reduce the tariff on imported vehicles to 2.5 percent to send a clear message of encouragement to Korean consumers to buy imported vehicles. Continue to publicize the benefits to the Korean economy of a healthy foreign automotive presence in Korea, citing the benefits to domestic manufacturers, consumers and the economy in general. Encourage KAMA to work closely with AMCHAM and KAIDA to improve consumer perception, including positive media coverage and collaboration with KAIDA in order to have a successful joint motor show in the future.
Korean Standards Continue to Pose Market Access Barriers for Imported Vehicles AMCHAM notes that the Korean government’s strong efforts in 2003 resulted in the resolution of several major standards issues, including re-definition of multi-purpose vehicles, acceptance of U.S. test standards for brakes, lowering of deteriorating factors for emissions testing, and applying the same strict safety test regulation on gray imports. Under the auspices of the highly effective “standards experts working group,” progress is being made on remaining standards issues, including fuel efficiency standards, the tail pipe issue, diesel standards, restrictions on frequencies for remote keyless entry devices, steering systems, tinted glass, bumper standards, and self-certification. The resolution of all remaining standards barriers will be a significant step toward the Korean government’s full acceptance of internationally accepted standards and regulations. AMCHAM would like to thank the Korean government for its continued cooperation in participating in these expert-level, joint industry/government meetings. At the same time, AMCHAM notes that new barriers in the form of standards continue to arise, making the business climate for imported automobiles unpredictable and fraught with potential hazards. Just as AMCHAM urges the Korean government to resolve standards issues that represent market access barriers for imported vehicles, it also urges full, equitable enforcement of existing standards and regulations for both Korean-made and imported vehicles to ensure a level playing field for all manufacturers competing in the Korean market. In addition, the Korean government
should continue to take all possible measures to reduce documentary requirements for the importation of vehicles and to make further progress in homologation. Recommendations: Allow foreign manufacturers to comply with either FMVSS (U.S) or EEC (EU) standards, as needed, for steering, tinted glass, tail pipes, and all other safety as well as emission regulations. Implement diesel emissions regulations, which are in harmony with globallyrecognized standards, such as FMVSS and EU, along with globally accepted diesel fuel quality standards. Continue to simplify and to reduce the documentary requirements needed to import vehicles in order to reduce time and expense for importers and, ultimately, prices for consumers. Accept either the US and/or the EEC OBD II.
Engine Displacement Tax Structure Is a Major Disincentive to Purchase Imported Vehicles Of the 23 OECD countries surveyed, only Korea imposes multiple taxes based on engine displacement. As part of the Automotive MOU, the Korean government restructured its system for taxation of motor vehicles, which places an inordinately high tax burden on cars with large engines, representing the vast majority of imported vehicles. In July 2003, the Korean government reduced the percentage of the Special Consumption Tax on vehicles and reduced the engine displacement categories on which it is based from three to two. Although AMCHAM appreciates this effort, the fact remains that the engine displacement tax structure places foreign manufactured vehicles, all of which are 2000cc or larger, at a distinct disadvantage vis-à-vis taxes on vehicles that comprise the majority of the Korean market. Recommendations: Restructure the tax system for vehicles in such a way that vehicles of larger engine displacement, (above 2.0 liters), are not disadvantaged. Tariff should be paid at port-of-entry and the subsequent calculation of multiple taxes should be based on CIF price only.
Restrictions on Financing Continue to Limit Consumer Choices The consumer automobile financing market was liberalized for both domestic and foreign participation as early as 1997. In 1999 the introduction of vehicle mortgages via the implementation of the Passenger Vehicle Mortgage Act offered consumers access to vital financing for vehicle purchases. Nonetheless, the inadequate regulatory environment for vehicle mortgages restricts their use, inhibiting growth potential in Korea’s total market demand for highend vehicles. Recommendations:
Establish a regulatory framework that supports dealer floor plan or wholesale financing for dealer inventory by providing for “secured interest,” a neutral tax structure, and title security. Establish “self-help” repossession processes for secured auto lenders.
Motorcycles: Highway Ban and Absence of Ownership Titles Seriously Impede Market Penetration With regard to market access for U.S.-made motorcycles, the highway ban for motorcycles remains as a major impediment for any real market penetration for heavy, U.S.-made motorcycles, which are specifically designed for safe highway use. Korea is the only major world market in which heavy motorcycles are denied access to major highways and designated overpasses in cities. In Korea, motorcycles are not yet officially recognized as property through ownership titles, as they are in other developed countries. The lack of availability of ownership titles restricts financing opportunities and, consequently, market penetration for heavyweight motorcycles in Korea. Recommendations: Reconsider the highway ban for heavyweight motorcycles in light of proven safety statistics. Establish a title ownership system and accompanying mortgage system for motorcycles, which will facilitate the financing of motorcycle purchases.