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KOREA MEMORANDUM OF UNDERSTANDING REGARDING FOREIGN MOTOR VEHICLES

What is this Agreement and what does it do?

Who benefits from this Agreement?

How can this Agreement help my company?

Can the U.S. Government help me if I have a problem?

How can I get more information?

What is this Agreement and what does it do?

In the U.S.-Korea Memorandum of Understanding (MOU) Regarding Foreign Motor Vehicles in the Republic of Korea, the Korean Government agreed to implement a variety of measures to improve market access for U.S. and other foreign automobile exporters. (In 1999, sales of American and European cars totaled 2,401, or 0.26 per cent of the Korean market.)

This Agreement was signed on October 20, 1998, by the Acting U.S. Trade Representative and the Korean Ambassador in Washington. It revised and expanded an earlier MOU that had been signed in September of 1995. It has no expiration date.

Who benefits from this Agreement?

Any U.S. or other foreign company wishing to export automobiles to Korea can benefit from this Agreement.

How can this Agreement help my company?

The Agreement applies to "motor cars and other motor vehicles principally designed for the transport of persons, including minivans and sport utility vehicles with a seating capacity of nine or less." The following is a summary of the measures that the Korean Government agreed to take:

Tariffs and Taxes

The Korean Government agreed to notify the World Trade Organization (WTO), within 30 days of entry into force of the MOU, that it would lower its bound tariff rate on passenger vehicles from 80 percent to its current applied rate of eight percent, constraining the Korean Government's ability to raise this tariff rate in the future.

It agreed to simplify its tax regime in ways that enhance market access for foreign motor vehicles. It reduced the annual registration tax on vehicles with engine displacement of more than 2000 cc's in March, 1999. It agreed that the 30 percent reduction in the consumption tax on all vehicles, which was implemented in July of 1998, will remain in effect at least until 2005. Certain other taxes have been eliminated, and minivans have been reclassified as passenger vehicles.

Standards and Certification Procedures

Under the 1998 MOU, the Korean Government took numerous measures to streamline this certification system.

The most significant change the Korean Government took was to shift its standards certification system from type approval to self-certification.

Other key measures include the following:

An incremental increase of the safety compliance test threshold to 2500 units per model per calendar year by January 1, 2001. Below this threshold, the Korean Government requires manufacturers to submit only a "manufacturer's certificate of compliance".

Significant minimizing of documentation requirements for models imported in volumes above this threshold through manufacturers' certification on Korean standards for which there are U.S. and/or ECE equivalents.

Acceptance of motor vehicles with headlamps meeting the ECE or U.S. beam pattern standard.

Allowance for waiver of the completion test, previously conducted on every vehicle sold in the Korean market as an element of the certification process.

Streamlining of documentation requirements for certification to environmental standards, allowance of entities other than the Korean Ministry of Environment (MOE) to conduct environmental tests, elimination of spot check inspections by the MOE of each vehicle imported, reduction in inspections required to be performed by the manufacturer and a reduction in the number of site visits required by the MOE.

Automotive Financing and Leasing

Under this Agreement, the Korean Government will permit non-commercial motor vehicles to be subject to "mortgages" (similar to liens in the U.S.), and will take necessary measures to establish efficient, expeditious and commercially reasonable foreclosure procedures for mortgaged vehicles to facilitate the recovery of financial losses in the event of default.

Bias Against Imported Products

Pervasive anti-import sentiments have limited marketing opportunities and intimidated potential customers for foreign vehicles in Korea. A perception is widely held by the Korean public that purchasing an imported passenger vehicle will risk public backlash and scrutiny by the Korean Government. This perception stems from the Korean Government's past support for campaigns and programs that discouraged the purchase of imported products. For example, in December 1996 and early 1997, the National Tax Office (NTO) engaged in broad action directed at lessees of imported autos. Though withdrawn after complaints by foreign governments, the threat of tax audits for lessees of imported cars had a chilling effect on sales of imported vehicles.

As a result of a severe economic downturn, a resurgence in early 1997 of "frugality campaigns" launched by civic organizations, ostensibly to reduce conspicuous consumption and ameliorate Korea's trade deficit, frequently deteriorated into the fomenting of anti-import bias among average consumers. While domestic sales have declined generally due to the economic downturn, imports of vehicles have fallen precipitously in great part as a result of this bias. An increase in vandalism and other forms of discrimination against U.S. and other foreign vehicles has also been reported.

As part of its commitments in the 1998 MOU, the Korean Government will continue and reinvigorate efforts to address effectively and expeditiously such instances of anti-import activity and to preclude discrimination against foreign motor vehicles. The Korean Government has also committed itself to encourage publicly the equal treatment of foreign and domestic motor vehicles through such means as direct outreach to civic groups in an attempt to improve the environment for sales of foreign motor vehicles.

Can the U.S. Government help me if I have a problem?

Yes. If your company is experiencing difficulties exporting automobiles to Korea because the Korean Government is not complying with this Agreement, contact the Office of Trade Agreements Negotiations and Compliance's hotline at the U.S. Department of Commerce. The Center can help you understand your rights under this Agreement, and can alert the relevant U.S. Government officials

to make inquiries with Korean authorities, if appropriate, that could help you resolve your exporting

problem.

How can I get more information?

The complete text of the U.S. Korea Memorandum of Understanding is available from the Office of Trade Agreements Negotiations and Compliance's web site.

If you have questions about this Agreement or how to use it, you can e-mail the Office of Trade Agreements Negotiations and Compliance (TANC) which will forward your message to the

Commerce Department's Designated Monitoring Officer for the Agreement. You can also contact the Designated Monitoring Officer at the following address:

Designated Monitoring Officer

U.S.-Korea Automotive Agreement

Office of Transportation and Machinery

U.S. Department of Commerce

14th Street & Constitution Avenue, N.W.

Washington, D.C. 20230

Phone: (202) 482 - 0670

Fax: (202) 482 - 3964

The Designated Monitoring Officer can also provide you with useful trade leads and contacts.

You may also wish to consult the following web sites:

The Office of Transportation and Machinery at the U.S. Department of Commerce provides exporters with information on the U.S. auto industry, trade barriers, trade promotion opportunities and links to other auto-related Internet sites.

The U.S. Commercial Service, American Embassy, Seoul helps U.S. companies enter the Korean market and expand their sales there.

The Office of the U.S. Trade Representative can provide you with additional information on the U.S.-Korea Automotive Agreement.