November 29, 2024

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[THE INVESTOR] Ahead of future trade amendments negotiations of the five-year Korea-US Free Trade Agreement, the United States is likely to demand an increased use of American-made parts on Korean vehicles exported to the states, according to industry experts on Nov. 19.

As the Trump Administration is already pushing for a higher percentage of American auto parts to be used by its major trading partners through its ongoing North American Free Trade Agreement trade renegotiation talks, local trade officials are predicting similar provisions will be requested during the KORUS FTA amendment process.  

Currently, the stipulations of KORUS does not require the use of US-made parts to export Korean automobiles to the United States tariff-free.

While some South Korean car models, such as the Genesis G80 and the Ioniq, exported to the states utilizes anywhere from zero to three percent of US-made car parts, according to data by the National Highway Traffic Safety Administration, American car parts make up 51 percent of Hyundai’s Santa Fe Sport SUVs, 46 percent of its Sonatas and 36 to 31 percent of its Elantra models.

Kia Optima’s use of US car parts ranges from 75 to 83 percent, while the Sorrento models consists of 45 to 52 percent of American made parts. 

However, should FTA negations introduce this US car part procurement clause, Hyundai and Kia Motors will be forced to increase its imports of US-made parts in order to export its vehicles to the States duty-free, which is likely to lead to major losses for local suppliers of Hyundai and Kia Motors.

NAFTA provisions currently stipulate that in order to export automobiles made in Mexico or Canada to the United States tariff-free, 62.5 percent of its auto parts must be produced within the three countries. However, the US is now arguing that this proportion should be increased to 85 percent and that 50 percent of the auto parts should be procured in the US.

Daimler, the parent company of Germany’s Mercedes-Benz, has already pre-emptively complied with increasing US pressure, announcing in May that it will be increasing its vehicles’ use of US car parts. 

By Julie Jackson/The Korea Herald (juliejackson@heraldcorp.com)