South Korea's massive and growing automotive trade imbalance certainly is an explosive situation. The disproportionate ratio between Korea's car exports and imports is a national embarrassment. I would agree that the threat of tax audits remains a lingering problem that the Korean government could do more to dispel once and for all.
It is true: Imported cars do have a serious image problem in Korea. It is largely the result of skillful manipulation of the media by the government. Over the years, Korean car buyers have been conditioned to think that the purchase of an imported car is a crime of economic treason.
This is a problem that will not remedy itself. Importers will be discouraged by the threat of tax audits, social disapproval and negative public opinion unless they organize themselves. They must fight to change public opinion.
But no one should expect the Korean government to take steps to help importers. It will be a long time indeed before we will see President Kim Dae Jung or a Korean cabinet minister walk into an imported-car dealership.
Reversing public opinion is a job for importers, represented by the Korea Automobile Importers & Dealers Association. They should wage an aggressive public relations campaign to explain why it is not unpatriotic to own an import.
The importers' association needs to explain why it makes economic sense to drive an import. It should explain how consumers will benefit when foreign automakers compete with Korean car companies.
Foreign automakers should explain to Korean consumers that buying an import will create the image of Korea as a fair trading partner. It is time for the importers to educate consumers and put imports in a positive light. The Korean government certainly is not going to do it for them.
Is the Korean government wholly responsible for the woes of the importers? Look at one important fact. Since opening its market to automotive imports in 1987, Korea has moved steadily - although slowly - to dismantle trade barriers. Today, duties on imported cars are just 8 percent, compared with 10 percent in the European Union. Homologation procedures - once a major hindrance to importers - have been smoothed.
Foreign automakers face another barrier: an unfavorable exchange rate. One dollar is worth 1,290 Korean won. Before the 1997 financial crisis - when import sales were at an all-time high - a dollar was worth only 800 won. If Koreans had more buying power, importers would be happier. Walk into just about any imported car showroom in Seoul and you had better have at least $28,000 in your pocket; that is what it will take to buy a new imported car. If you have any less, you will be politely steered to a used-car lot.
This explains why Koreans think of imports as luxury items. General Motors carries only two brands in Korea: Cadillac and Saab. DaimlerChrysler's best seller is the Jeep Grand Cherokee, while Ford markets Lincoln, the Ford Explorer, the Jaguar S-Type and the Volvo S60, S70 and S80. These are not cars for the toiling masses.
By contrast, Japanese and Koreans automakers enter a market by offering low-priced vehicles. Then they work their way up. Importers have ignored this approach as they compete in Korea's small luxury segment. And that segment is not growing. Importers already claim 30 percent of Korea's luxury car market.
So why do importers studiously avoid the lower-priced mass market? It is because Koreans excel at making competitively priced entry-level cars. General Motors could bring in low-priced models from Adam Opel AG. In Korea, vehicles with 1.5- to 2-liter engines account for most sales. But GM and other importers don't want to do that. Unless they are rich, Koreans balk at driving anything equipped with an engine larger than 2 liters. If they buy cars with big engines, they must pay hefty taxes - South Korea's version of a gas guzzler tax.
Now, Washington argues that the Korean tax system discriminates against foreign cars - which invariably are big luxury cars. But if the U.S. retaliates, it could do more harm than good. Korean consumers might buy low-priced import. But if choices are limited to luxury models, the average buyer will avoid the imports.