Renewal of the U.S.-South Korea free trade agreement will make little or no difference to South Korean tire makers doing business in the U.S., although it's good news for their customers, according to executives of those companies.
Under the terms of the renewed agreement signed by President Barack Obama Oct. 21, U.S. tariffs on tires made in South Korea will go from 4 to 3.2 percent beginning Jan. 1, 2012, then fall by another 0.8 percent annually until they reach zero in the fifth year. They will remain at zero another 15 years until the agreement comes up for renewal.
Even at zero, the tariff reduction won't have much of an impact on Kumho Tire USA Inc., according to John Yoon, the tire maker's general manager of marketing.
“The amount of money we save by the tariff reductions is very small,” Mr. Yoon told Tire Business.
John Aben, vice president of sales for Nexen Tire America Inc., agreed with Mr. Yoon. In fact, Mr. Aben said, it isn't even certain whether the agreement will go into effect.
“For the U.S. market, it's a good thing,” Mr. Aben said. “It's obviously positive for our customers, because their bills will be 4 percent less.”
However, the South Korean legislature still hasn't voted on the agreement, and its dislike of some of the pact's agricultural provisions makes Korean passage somewhat iffy, he said.
In an email response, officials of Hankook Tire America Corp. told Tire Business the agreement “will not provide a big impact” on South Korean tire companies.
The South Korean trade agreement was one of several trade-related measures President Obama signed Oct. 21. At that time, he also renewed free trade agreements with Panama and Colombia; renewed the Generalized System of Preferences (GSP) program, which allows duty-free status for tires and other products manufactured in developing nations; and renewed the Trade Adjustment Assistance Act, which offers financial aid and retraining to U.S. workers who lose their jobs because of foreign competition.
All the measures had substantial bipartisan support in Congress. The House of Representatives voted 278-151 Oct. 11 to renew the South Korean agreement, and the Senate voted 83-15 for the measure the following day.
The Korean agreement alone will increase the U.S. Gross Domestic Product by $11 billion and create 70,000 jobs over its duration, according to a White House blog post by U.S. Special Trade Ambassador Ron Kirk.
Both the Korean agreement and the GSP program lapsed Dec. 31, 2010. Sen. Jeff Sessions, R-Ala., reportedly blocked GSP extension when he couldn't get sleeping bags—the specialty of an Alabama manufacturer—taken off the list of goods eligible for GSP status.
Besides gradually lowering the U.S. tariffs on South Korean tires, the agreement would cause Korean tariffs on U.S.-made tires to go immediately to zero from the current 8 percent.
U.S. opinion about the Korean agreement was split sharply, with groups such as the Tire Industry Association (TIA) supporting it and groups such as the United Steelworkers (USW) union opposing it.
The Korean agreement will help U.S. consumers hurt by the price hike on tires in late 2009 caused by the Section 421 tariffs on Chinese-made passenger and light truck tires, TIA said. In the wake of those tariffs, Korean tire exports to the U.S. increased 63 percent, according to the association.
“The renewal of the program removes 95 percent of the existing tariffs within five years for goods and services covered by the pact and gives particular preference to the automotive sector for both the importing and exporting of goods, including tires,” said Roy Littlefield, TIA executive vice president.
“The agreement also provides greater access to the Korean government procurement market for American companies.”
On the other hand, when Congress approved the measures the USW claimed that renewal of the trade agreements will only harm U.S. workers.
“Historically, these agreements have closed American manufacturing facilities and cost American jobs,” said Leo W. Gerard, USW International president, in an Oct. 12 statement. “It is foolish to think that this latest round will do something different.”
The USW successfully petitioned the Obama administration for the Section 421 tariffs on Chinese tires. It also later successfully fought to remove duty-free GSP status on tires imported from Thailand.
There was no word on when the South Korean General Assembly might vote on the free trade agreement.
The U.S. imported 18.5 million passenger, 2.53 million light truck and 271,237 medium truck tires in 2010 from South Korea, worth $1.17 billion.
By contrast, the U.S. exported fewer than 130,000 tires worth a total of $9.9 million to South Korea during that same year, according to U.S. Department of Commerce data.