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Changes in U.S. FTA unlikely to damage Korean carmakers
South Korea’s apparent compromises on automotive clauses in the Korea-U.S. free trade agreement are unlikely to have a significant impact on domestic carmakers, analysts said Tuesday.

Seoul backed down on several automotive regulations in the trade ministers’ meeting that began Monday. 

Though the concession invited domestic criticism from the opposition parties and civic groups, industry experts say that the resulting damage to the domestic industry will be limited.

“I don’t think the changes will have any significant effect as localization (of Korean carmakers in the U.S.) is well established, and parts also don’t present much of a problem as import volume from the U.S. is not large,” Tong Yang Securities Inc. analyst Ahn Sang-jun said. 

“Much of the negotiating seems to be a pretext. I can’t see the problem. In contrast I think it will bring more freedom and promote facilities investment.”

According to Korea Automobile Manufacturers Association data, Hyundai Motor Co.’s plant in Alabama produced about 230,000 vehicles during the first nine months of the year, while Kia Motors Corp.’s facility in Georgia rolled out 96,000 vehicles during the same period.

With the majority of Hyundai and Kia’s U.S.-produced vehicles were sold within the country, their production figures are equivalent to about 56 percent and 36 percent, respectively, of Hyundai and Kia’s sales in that country.

In addition, with both plants capable of producing 300,000 units per year each, the two Korean carmakers still have room to increase the proportion of their U.S. sales accounted for by vehicles produced within the country.

The Korean side is reported to have conceded to putting a cap on customs refund on automobile parts that are imported and used in exported vehicles at 5 percent.

Unlike Korea’s trade pact with the E.U., such a clause was not included in the original Korea-U.S. FTA.

While the change may not deal significant damages to local carmakers, U.S. carmakers may stand to gain from Seoul’s alleged backtracking on environmental regulations.

According to reports, Seoul is reviewing exempting up to 10,000 vehicles each year from the new fuel economy and greenhouse gas emission standards that will go into effect in 2015. Korea had originally intended to exempt brands with an annual sales figure of less than 1,000 units from the new rules.

From 2015, vehicles able to seat 10 or less people will be required to either meet the 17 kilometers per liter fuel economy standard or emit less than 140 grams of carbon dioxide per kilometer.

While U.S. carmakers will be exempt from strengthened rules, industry officials say that it is too early to predict the extent of the advantage gained and that it will not be lopsided.

“Changes will give some advantages to U.S. carmakers in Korea, but it’s hard to tell how much,” a KAMA official said.

“The Korean industry’s position is that the FTA must be ratified as soon as possible as it will be beneficial for both Korean and the U.S. automotive industries.”

By Choi He-suk (cheesuk@heraldm.com)