In recent years, the United States has accused Korea of having an 'anti-import' bias when it comes to motor vehicles. US maintains that imports of motor vehicles in Korea is 'unusually low' because Korean consumers will not purchase foreign vehicles due to 'nationalistic' or 'patriotic' reasons. In this paper we look at what would happen if consumers, Korean and worldwide, eliminate their preference for domestic vehicles and judge both domestic and imported vehicles from different sources on equal criteria in terms of substitutability among them. Since tariff barriers for passenger cars in Korea are relatively low at 8%, a traditional approach, which looks at trade liberalization through tariff reduction, is not likely to show a substantial change on trade. To examine the possible consequences of changes in consumer preference on trade, we see what happens when substitution elasticities concerning consumption behavior between domestic and imported motor vehicles are changed in the GTAP model. When the entire world eliminates its discriminatory preference for domestic motor vehicles, motor vehicle industry imports and exports for all countries will increase. In addition, the domestic production and trade balance of the motor vehicle industry, welfare, and GDP will rise or improve for motor vehicle net-exporting countries such as 'Korea,' 'Japan' and 'EU', while the variables for motor vehicle net-importing countries such as 'US,' 'Other Asia' and 'Rest of the World' will fall or worsen.

Executive Summary
I. Introduction

II. Korea and World Trade in the Motor Vehicle Industry
1. World Trade in the Motor Vehicle Industry
2. National Comparative Advantage

III. Korea's Trade in the Motor Vehicle Industry
1. The Motor Vehicle Industry
2. Passenger Cars
3. Motor Vehicle Parts
4. US Trade in the Motor Vehicle Industry and Korea-US Trade
5. The Elimination of the Import Source Diversification Program and Its Effects
on Korean Trade
6. Industrial Linkages of Korea's Motor Vehicles Industry
7. Tariff Rates of the Motor Vehicle Industry

IV. Potential Impact of Changes in Preferences on Trade and Output
1. The GTAP Model
2. Model Specifications
3. Parameters of Concern
4. Policy Simulation
5. Results of the Simulation Experiments

V. Summary and Implications

REFERENCES

ANNEX 1: Tables
ANNEX 2: On the Elasticity of Substitution in the GTAP Model