Background

Under an agreement in principle to modify the U.S.-Korea Free Trade Agreement, the U.S. will have an additional 20 years, until 2041, to phase out its 25 percent tariff on Korean light trucks and medium/heavy trucks. The International Trade Commission recently completed its review of the probable economic effect of this change.

The ITC states that the U.S. currently imports few if any covered trucks from Korea but that two Korean producers have reportedly been considering entering the U.S. light truck market, likely because the phaseout of U.S. truck tariffs is slated to begin Jan. 1, 2019, and be completed by Jan. 1, 2021. The ITC examined what might happen if Korean producers either continue to not supply the U.S. market or supply the U.S. market through (a) transplant production (i.e., factories established in the U.S.) exclusively, (b) a combination of Korean exports and transplant production at a market share similar to that of other foreign truck producers, (c) a combination of Korean exports and transplant production at a market share similar to that of Korean producers in the U.S. non-truck vehicle market, or (d) Korean exports exclusively.

The ITC provides estimates on the probable economic effect of each of these scenarios but considers (b) the most likely. Under that scenario the ITC believes the U.S. would import 59,000 fewer light trucks and 7,600 fewer medium/heavy trucks from Korea under the proposed modification than if the current tariff elimination schedule remains in place. The ITC also estimates that the U.S. could produce domestically 45,000 light trucks and 3,700 medium/heavy trucks that it otherwise would not under the current schedule.

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