Canada Reaches Free Trade Deal with South Korea

 

Canada has reached a free-trade deal with South Korea, which is expected to provide exporters with a better chance to compete with the US, Europe and other nations.

South Korea is phasing out virtually all tariffs on Canadian imports, which is expected to add C$1.7bn to Canada’s economy over the next 15 years. South Korea is cutting 81.9% of duties upon the first day of the deal, and Canada will remove 76.4% of levies. However, some tariffs will take more than a decade to be fully removed.

Canadian prime minister Stephen Harper said the agreement “a great deal for both countries,” promising that it would create jobs for Canadians today and for future generations. “It gives Canadian businesses access to a booming G20 economy but more than that – and I can’t emphasise this enough – the key supply chains that begin in Korea fan out all across Asia,” he said.

Stakeholders representing the aerospace, pork and beef industries that were present at a briefing Monday night gave a ringing endorsements to the deal, The Canadian Press reported. It is expected to increase Canadian exports to South Korea by 32%.

The deal is expected to be particularly lucrative for Canada’s pork industry. The industry has struggled mightily against its US, Chilean and European counterparts, all of which have benefited lower tariffs.

Canada’s beef industry has also lost business to rivals like the US. Canadian national daily The Globe and Mail noted that Canadian beef exports to South Korea were C$40m in 2002, compared to just C$7.8m in 2013.

The new agreement gradually removes a 40% tariff on Canadian beef and an 18% tariff on animal byproducts. “Canadian beef will be able to once again compete for meaningful access in the Korean market,” said Dave Solverson, president of the Canadian Cattlemen’s Association.

The deal also eliminates tariffs of 1% to 10% on lumber and pulp, and 8% tariffs on iron, aluminum and nickel.

Bad for the Auto Industry?

Ford spoke out against the trade deal, insisting that it would cost Canadians jobs while doing nothing to benefit auto exporters.

Under the agreement, Canada would phase out its 6.1% tariff on imports of vehicles over three years. Tariffs of 8% on Canadian automotive exports would be dropped immediately.

However, Dianne Craig, Ford of Canada chief executive (CEO), argued that free trade agreements between other nations and South Korea have done nothing to reverse a one-sided trade flow of vehicles. Ford pointed out that since the US-South Korea deal, the US trade deficit has worsened by 50%. Volumes of US goods exported to South Korea have dropped nearly US$2bn.

“We believe that South Korea will remain one of the most closed automotive markets in the world under the deal negotiated by the Canadian government,” Craig said.

The Unifor union, which represents workers at Canadian auto assembly plants, agreed. The union pressed the government work to reduce trade imbalances. “We needed our political leadership to broker a deal that addressed the reality that we have 100,000 Korean-made cars being imported to our market, while we are exporting only 100 cars to the Korean market,” union president Jerry Dias said.

Harper dismissed Ford’s claims, maintaining that the deal is necessary to help Canada diversify exports from the US, its main trading partner. “What we’re doing here is allowing other Canadian companies and other Canadian sectors to have the same access that Ford already has,” Harper said. “Ford supported the Korea-US free trade agreement, thereby Ford has access through the US to the Korean market.”

Dias noted, however, that Canada failed to win some of the same protections the US received in its agreement with South Korea. The US deal included a ‘snap back’ provision that allows the government to pump tariffs back up to their previous levels if South Korean non-tariff barriers limit US exports. “We cannot stand by a deal that secures a one-way flow of Korean auto imports into the Canadian market, undermining the jobs and industry on which so many Canadians depend, while precious little is done to strengthen our imports to Korea,” Dias said.

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