USA Today
By Chris Woodyard, USA TODAY
May 12, 2009

All shined up with nowhere to go, hundreds of new Hyundai vehicles languish on the docks of one of the world’s largest auto factory complexes.

Touring the piers, company spokesman Oles Gadacz says twice as many cars are awaiting a quick trip aboard nearby transport ships headed for the U.S. and Europe compared with a couple years ago. Many of them are SUVs, such as the Veracruz or Santa Fe, that the factory has temporarily stopped producing because there isn’t enough demand right now in the U.S.

The troubles in Ulsan underscore how the auto industry’s problems are global. But until business improves, South Korean trade officials have a proposal they say could jump-start trade that has already fallen 30% or more: a free trade agreement with the U.S. that they argue is mutually beneficial.

"This is a win-win for both countries," Gadacz says. "We invite the competition."

A proposed U.S.-South Korea Free Trade Agreement was hammered out in 2007 by the Bush administration. The deal could boost U.S. exports to South Korea by at least $9.7 billion a year and increase South Korean imports by $6.4 billion or more, the U.S. International Trade Commission estimated at the time. The proposed pact recently passed muster with a South Korean parliamentary committee and awaits action in the U.S. Congress. Similar free trade agreements with Panama and Colombia are on deck as well.

Despite harsh campaign rhetoric last year, especially about the North American Free Trade Agreement with Mexico and Canada, President Obama and U.S. Trade Representative Ron Kirk indicated as recently as April that they are open to free trade deals — with likely modifications.

While South Korea’s is potentially the biggest of the three — it is America’s seventh-largest trading partner — it’s also the thorniest. Smoothing the ability of American firms to sell in South Korea could benefit industries ranging from beef to pharmaceuticals and aircraft. But the holdup centers on the product for which Hyundai is best known: all those cars.

Hyundai on a tear in U.S.

American auto interests have lined up against the proposed trade pact. Ford, Chrysler and the United Auto Workers are opposed. General Motors, which owns South Korean automaker Daewoo, has largely steered clear of the debate.

Although the U.S. trade deficit with South Korea was only about $13.3 billion last year, about 80% of the shortfall involved autos, says Mike Moran, a Ford spokesman.

South Korea, he says, is "the most closed market in the world" for foreign cars, and not all the barriers involve tariffs. Only about 1% of the cars sold in South Korea are American made.

In the U.S., Hyundai is on a tear. Though new cars are stacking up in Ulsan, auto sales were off only about 3.6% in the U.S. for Hyundai and sister brand Kia for the year through April. Meanwhile, sales of all brands foreign and domestic were down 37.4%, Autodata reports. As a result, Hyundai and Kia are picking up market share.

Under a free trade agreement, the U.S. would drop its 2.5% tariff on auto imports from South Korea. In turn, South Korea would phase out its 8% levy on American cars.

The problem, however, is that South Korea is a much smaller market — and American cars suffer from an image problem. "Popularity is very low," say Kyung-Tae Lee, president of the Institute for International Trade in Seoul. "They say craftsmanship is much better (on) Japanese and European (cars) than American."

If not U.S., Europe?

The agreement is not without controversy in South Korea, too. Family farmers worry about importing more U.S. beef. Hyundai’s autoworkers union is also opposed.

Yet, Korean trade officials argue that the deal should not be held up. When it comes to autos, the deal "should not be held hostage by just one sector," says Hye-min Lee, a deputy government minister for trade issues.

Others warn that if the U.S. stalls, the South Koreans may sign a free trade pact with the Europeans. "We will lose," says Tami Overby, CEO of the American Chamber of Commerce in Korea.

Getting the agreement moving likely will involve further negotiation on automotive issues.

William Reinsch, president of the National Foreign Trade Council in Washington, says he thinks a deal with South Korea, after Panama and Colombia, "will get taken care of eventually."

But Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers, also in Washington, says, "We recognize it’s not going to go anywhere until something happens on cars."

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