hankyoreh

By Kim Kyung-rok, staff reporter

US automobile imports nearly doubled in the past year. With the South Korea-United States Free Trade Agreement (KORUS FTA) granting tariff benefits when it went into effect last year, German and Japanese brands have been moving their production sites to the US. But an unexpected hurdle has surfaced, with the Busan customs office and other branches of the Korea Customs Service (KSC) launching a large-scale investigation into the actual place of origin for the imported US cars.

In a phone interview the Hankyoreh on March 4, a KCS source said an on-site inspection had recently begun trying to determine the place of origin for US imports. To do this, the service is collecting various forms of documentation, including figures from the year since the KORUS FTA took effect in March 2012, to determine which models and brands appear likely to have violated rules of origin.

The KCS explained that it was using a random sampling method because circumstances precluded inspecting all cars.

Rules of origin are among the standards for determining whether imports are entitled to KORUS FTA tariff benefits. Even items assembled in the US are disqualified if a certain portion of their internal elements were not produced there. According to the KORUS FTA, three standards are used to determine origin for automobiles: pure production costs, deductions, and value added. Typically, at least 55% of the car’s production costs have to be in the US. Any company found violating this rule is liable for the tariff reductions received to date, as well as a surtax.

Last year, many Japanese automobile exporters, including Toyota, Nissan, and Honda, moved the production bases for major models to the US. It was a response to a number of variables that included the high value of the Japanese yen. Examples included the Toyota Camry and Sienna, the Nissan Altima, and the Honda Accord. The German automaker Volkswagen has also been exporting its Passat sedan from US factories.

The jump in US imports since the KORUS FTA took effect is reflected in the numbers.

Korea Automobile Manufacturers Association figures put the number of automobile imports in 2012 at 696,667, up 92.0% from the 362,880 recorded in 2011. Observers in the imported car industries expect it to go up even more in 2013, with tariff benefits from the KORUS FTA increasing each year. Tariffs dropped from 8% to 4% last year when the agreement took effect and are scheduled to fall one percentage point each year from 2014 before becoming completely tariff-free in 2016.

Some importers responded to news of the KCS investigation by conducting their own place of origin inspections, hiring outside consultants at a cost of between 30 million and 100 million (US$28,000-$92,000) won.

The KCS source said they were not at liberty to discuss whether any violations were found because the investigation is still ongoing, but added, “We have found some companies that seem to have a poor understanding of the rules of origin.”

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