[Outlook]What’s fair in the auto squabble?

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[Outlook]What’s fair in the auto squabble?

In the past, people who owned imported cars used to be picked on by the National Tax Service. Whenever speculators were in the news and tax revenues were low, the tax office carried out tax investigations and singled out people living a lavish lifestyle. The first criterion was ownership of imported cars.
The U.S. government vehemently protested the Korean government’s practices, maintaining that it was an unfair act aimed at blocking the sales of imported cars. After a long time passed, the bizarre idea that owners of imported cars were likely tax evaders finally disappeared.
Even after that, the United States complained about the exclusiveness of Korea’s car market, meaning that Korea exported a huge number of cars while closing its doors to imported cars. Last year, for instance, the United States imported 700,000 Korean vehicles while Korea imported merely 4,000 U.S. cars.
The United States constantly demanded that Korea change the auto tax, claiming that Korea’s tariff rates were still high and using engine displacement as the basis for the tax was unfair. U.S.-made cars usually have large displacement because most people need cars with powerful engines to drive long distances across its vast land. Thus, to use engine displacement as the basis for tax is disadvantageous to the country. Washington pressed Korea to use price or fuel efficiency as the tax base.
As Korea needed to keep selling cars to the United States, we could not ignore its demand, so we accepted most of it. In 1987, when Korea allowed imported foreign-made cars for the first time, the tariff on them was as high as 50 percent, but now the rate has dropped to 8 percent. Owners of cars with engines larger than 3,000 cubic centimeters in displacement were subject to higher taxes, but now the same tax rate is applied to cars with engine displacement of 2,000 cubic centimeters and up.
The auto issue was discussed until the last minute during negotiations for a free trade agreement with the United States, the most important task between the countries since Korea and the United States formed a military alliance.
The United States again demanded that Korea change its tax based on engine displacement.
U.S. government officials have worked hard to lower several obstacles, but it is not certain if U.S. carmakers will benefit from it. To be totally honest, it seems very unlikely.
In fact, automakers in countries other than the United States have so far benefited from changes in our measures which were made at the request of the United States.
So far, the market share of imported cars is exceeding the 5 percent level, long regarded as an unsurpassable barrier.
As of January, 4,365 new imported cars were registered. That was 22 percent more than the previous month and 27 percent more than the same period last year. If this rate persists, sales of imported cars are likely to top 50,000 units for the first time.
Nevertheless, U.S.-made cars are not doing so well. In Korea, Lexus, the upscale brand of Toyota, is leading, and BMW, Audi, Volkswagen, Mercedes-Benz and Peugeot are battling each other behind the Japanese brand.
The poor sales of U.S. cars seem to be the result of evaluations on them in the market. General Motors and Ford Motor Company, the two automakers that represent the U.S. car industry, are not doing well even in their homeland. Some people complain that these cars cause small troubles too often. Customers are not satisfied with their products. As a result, while GM and Ford are losing their market share, Japan’s Toyota and Honda are running at full speed in the United States.
GM and Ford are in a very difficult financial situation because they are paying for health insurance to retired workers even while their sales are sluggish. It has already been three years since the credit ratings for the two U.S. automakers fell to the level of junk bonds. Considering all these challenges, GM, the current No. 1 automaker in the world, might be displaced by Toyota in a couple of years.
If I may change the subject a little, I feel something like betrayal when I think of Hyundai Motor Company. It now produces 3.7 million units a year, making it the world’s seventh-largest carmaker.
The company was able to grow that much thanks to civil servants who did their best to protect the domestic market. That growth story also owes credit to all Koreans who are so proud of Hyundai cars that they applaud if they spot one on the street when they are abroad.
That’s why I can’t help but feel angry when the company has strikes as though they were an annual expectation, damaging their own competitiveness.

*The writer is the international news editor of the JoongAng Ilbo.

by Shim Shang-bok
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