By Daniel P. Malone & Jin-Sung Park
On March 1, 2017, the United States Trade Representative (USTR) released President Trump’s Trade Policy Agenda. It discloses an apparent intent “to seriously review . . .” several trade agreements including the Korea/U.S. Free Trade Agreement (KORUS FTA), which took effect on March 15, 2012. Whether this will lead to formal renegotiation remains to be seen. The report simply states that, since the U.S. trade deficit with South Korea essentially doubled between 2011 and 2016, the overall agreement is “not working as anticipated”. The KORUS FTA is a comprehensive bilateral trade agreement that covers numerous industries. Naturally, not all industries have had the same experiences under KORUS.
Perhaps no industry reflects the trade imbalance that the USTR report alludes to more than automotive. The report’s suggestion seems to be that, if the trade imbalance has doubled in five or so years, then tariffs and, in particular, non-tariff barriers (NTBs) — the guts of trade agreements – must be the culprit. Under that scenario, renegotiating the agreement then emerges as the likely “solution”. Whether and to what extent, if any, the KORUS FTA should be revisited is far beyond the scope of this piece. Indeed, this article takes no position on that issue.
Currently, even though the market share of import vehicles in South Korea has grown significantly, particularly among German and Japanese offerings, products of the Detroit Three have lagged behind. This may involve customer choice as much, or more so, than trade agreements. Generally, the former consideration involves what makes a consumer buy one brand over others. The latter involves ensuring the proverbial “level playing field.” Both matter. Neither provides a complete solution.
Notwithstanding whether the KORUS FTA is eventually renegotiated, the former issue warrants attention. When exploring how U.S. manufactured vehicles can be more desirable to South Korea’s consumers, part of the answer may involve eliminating impediments to customer choice.
This article briefly examines one possible contributing factor to the current imbalance of vehicles sold, which has little, if anything, to do with trade agreements. It then offers an innovative, promising solution that may well result in more sales of U.S. vehicles in the South Korean market than a renegotiated agreement will.
Factors to Consider in Relation to U.S. Car Sales in South Korea
In any competitive market, some products sell better than others for a variety of reasons. Some involve marketing, quality, and differentiating features. Others involve practical impediments. There are practical impediments as well as potential opportunities, passed unnoticed so far, to selling U.S. vehicles in the South Korean market.
Impediments to Enhancing convenient, reliable post-sale service
A major consideration among South Korean purchasers of import vehicles relates to post-sales maintenance & service. Generally speaking, it has been poor, slow, complicated, especially expensive, and most of all, limited and concentrated only to a small number of auto-repair shops throughout the Republic of Korea (ROK). For example, there are only eight “official” repair shops to service all Chrysler products in Gyeonggi Province with its population of over 26 million. Neither Ford nor General Motors is substantially better in regard to its vehicles sold in South Korea, but made in the United States.[i]
Potential Opportunities: Skilled Repair Engineers
At the same time, however, an abundance of excellent repair and maintenance mechanics exist throughout the ROK. But the vast majority are trained and experienced to repair Korean made vehicles only. These automotive repair/maintenance experts in Korea refrain from touching import cars because they don’t want “messy” aftermaths from the repairs. In addition, they don’t have experience in dealing with the unfamiliar import cars. For example, what if a Korean mechanic fixed an import car, and subsequently, the car experiences a mechanical “glitch” soon thereafter? The customer (i.e. the owner of this import car), might blame the Korean mechanic who dared to go under the hood, having no previous experience with this foreign model.
Of particular importance, absent affirmative concerted effort, the fast approaching automated and connected vehicle technology will further exacerbate this situation. Indeed, the industry transformation straight ahead will require training in, for example, software, sensors, and electronics, among many other things. What is worse, the “official” dealers proclaim or threaten consumers that any of their own brands may not be repaired at their shops if it has any unofficial repair history.
On-Line & Mobile Transactions Are Both International and Personal
These days, international trade is rapidly going on-line, mobile, and personal. Korean customers, even housewives are ordering baby diapers, clothes, hand-bags, shoes, baby-carriage, and what not, on-line at Amazon.com, E-Bay, and other like sources abroad directly and without depending on ‘professional importers or sophisticated lines of credit (e.g. LC’ s via international banks). Instead, they use Paypal, credit cards, etc.; and “voila”, an international transaction is completed. Indeed, Koreans are ordering Samsung TVs on-line from U.S. sources and shipping them back to South Korea. The only procedure left, therefore, is physical logistics (i.e. international delivery – the convergence of international trade and logistics). The potential catalyst herein may be the globally well-advanced information & communication technology of South Korea.
A Practical Solution to the Impediments Which Have Been Crippling Sales of U.S. Vehicles in South Korea
This article sets forth a concept. If it gains appeal, numerous details can be discussed and fleshed out later.
“Post-sale Auto-repair Mechanics Exchange Program”
Suppose trained and certified Korean automotive repair mechanics went to the U.S. temporarily pursuant to a prescribed training program. Each of the Detroit Three could hire a prescribed number for temporary assignment at one of its plethora of (post-sale) service centers. Korean mechanics would work there while getting training and practical experience with all model lines. After orientation in the United States, (e.g. when VISA expires), the mechanics would return to Korea.
Armed with this training and experience, the Korean mechanics would then ambitiously and confidently re-enter the ROK repair market of import cars independently and order all the necessary auto-parts on-line directly from the United States (i.e. mobile transactions arranged through the Detroit Three). Doing so would promote robust competition.
Potential Impact of This Program
Pursuant to this “program”, the import car repair cost in South Korea would likely drop, perhaps dramatically, to a similar level to that of Kia and Hyundai cars. In time, more robust competition could result in a more efficient, affordable repair/maintenance market for imported cars in South Korea. This could likely be realized only after hundreds of Korean auto mechanics are “cured” of their “import-car-phobia.” Practically speaking, this grass-roots democratic market approach might be significantly more impactful than yet another top-down bureaucratic approach of renegotiation of a trade agreement. Indeed, it could make the import car, especially U.S. imports, friendly and favorable among Korean customers and Korean mechanics who have experienced various American automotive vehicles in the United States. They will discover by first-hand, personal experience that American cars are reliable and affordable, even compared with German cars.
So what steps should be considered to make this miracle happen, or, more realistically, to get this project underway? The best, perhaps only, way for this exciting, promising project to work is via a well-organized, highly motivated and funded Public Private Partnership.
Simply stated, in the United States, the project would involve recruiting and orientating both Federal and State officials as well as Detroit Three executives to work collaboratively with the U.S. Immigration & Naturalization Services. The project would determine a special quota for certified Korean automotive mechanics willing to relocate for the requisite training period in the United States. That trained, focused, and motivated group could then partner with the Korea International Trade Association (KITA), which operates its World Trade Academy. It has the capability to assemble hundreds (or even thousands) of certified Korean automotive mechanics. It can also educate them in colloquial English and “automotive jargon” that is necessary for them to survive and work prominently in the US automotive repair market.
Once in operation, KITA’s Trade Academy can collaborate to arrange for VISA procedures as well as job interviews by one of the aforementioned American employers of these select KITA World Trade Academy graduates.
The successful and sustained commitment to this practical program would effectively address a current major impediment to U.S. import sales in South Korea. In time, American cars will gradually catch up and sell very successfully in South Korea. Those veteran mechanics with U.S. market experiences will open their own shop anywhere that can easily fix any problems with any — mostly US – import cars. That, in turn, should lower the significantly expensive auto insurance costs in South Korea, which, in turn, will bolster demand for import cars.
Big challenges call for innovative measures. If the Detroit Three want to sell more U.S. built cars in the ROK, then it should do so by bringing in certified Korean mechanics in mega-multitudes, training them, and providing practical repair experience on American cars in its post-sale, maintenance market. Then, let those trained mechanics return to Korea. They are already highly skilled in auto mechanics before entering this program. As the saying goes:
“Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.”
Doing so will empower these trained mechanics to serve as the cornerstone for and the voluntary spokespeople in favor of far more U.S. automotive sales in a most important market.
If there is a “will” to explore this project, then herein lies a vision and basic plan to address an impediment to increased sales of U.S. imported cars in South Korea. The Germans — Mercedes-Benz and BMW – have undertaken such a program a couple of months ago. Practically speaking, in the long run, this may be the only practical and promising way to increase the market share of American made cars in South Korea.
Daniel P. Malone is an attorney with the Detroit-based firm, Butzel Long, email@example.com. He serves as the firm’s Director of Korean Client Relations and has extensive experience with South Korea. Jin-Sung Park serves as Head for the Korea International Trade Association (KITA)’s Northern Gyeonggi Province Center. He can be reached at firstname.lastname@example.org. The views expressed here are the authors’ alone. Photo from RICO Lee’s photostream on flickr Creative Commons.
 If renegotiation occurs, this proposal could be part of an “amended” KORUS FTA.
[i] See generally Chrysler has eight repair, not showroom, facilities in Seoul’s Capital City Zone; FORD has 17 repair shops in the entirety of Korea; General Motors has 20 repair facilities for the entirety of Korea for U.S. imports. As for Chevrolet, like Hyundai-KIA, GM-Korea lists 445 repair shops on its website albeit primarily for Korean made cars. This is inadequate.