Rev Ind Organ (2014) 45:39–58
Effects of FTA Provisions on the Market Structure
of the Korean Automobile Industry
Minsoo Park · Hongjai Rhee
Received: 24 August 2012 / Accepted: 7 January 2014 / Published online: 20 January 2014
© Springer Science+Business Media New York 2014
Abstract The Korean passenger car market is dominated by a fewdomestic producers.
In this paper, we investigate whether this market structure is the result of import tariffs
and taxes that penalize foreign manufacturers. Our counterfactual simulation under
two FTA scenarios shows that the market shares of imported and domestic cars show
minimal adjustments, suggesting that import tariffs and taxes may not explain the lack
of penetration of import cars in Korea. We predict changes in consumer surplus and
discuss the policy implications of our ﬁndings.
Keywords FTA · Tariff elimination · Automobile industry ·
JEL Classiﬁcation F14 · F17 · L62
The Korean passenger car market has long been criticized as one of the most closed
markets in the world. Although the overall share of imported cars in the Korean market
has grown, in 2010 it remained low at approximately 7 %. It is striking that no globally
competitive car manufacturers from the US, the EU, or Japan accounts for more than
a 1 % share in a market in which as many as 1.5 million new cars are sold per year.
Department of Economics, Sungkyunkwan University, 25-2, Sungkyunkwan-ro, Jongno-gu,
H. Rhee (
College of Business Administration, Ajou University, San-5, Wonchun-dong, Suwon, Korea