Canada’s first trade agreement with an Asian Nation

Image_Shake hands_Pic 1

From Left: Canadian Prime Minister Stephen Harper and South Korean President Park Geun-hye in Seoul, the two countries signed a free-trade agreement.

Source: The Wall Street Journal

South Korea and Canada signed an agreement to remove tariffs on most goods they trade, aimed at boosting the trade between the two.

The announcement puts an end to nearly a decade of arduous on-again, off-again negotiations, and marks Canada’s first free-trade foray into the Asia-Pacific region. The deal focuses on sensitive items such as cars and beef.

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Key tariff and trade figures of Canada and South Korea

Sources: Statistics Canada, IMF, Canadian Press

Trade volume between the two had fallen to $9.9 billion in 2012 from $11.5 billion in 2011 reflecting Canada’s declining agricultural exports to South Korea due to Seoul’s push for other free-trade pacts with the U.S. and Europe.

South Korea's Growing trade pacts

South Korea’s Growing Trade Pacts

Source: south Korea’s Trade Ministry

The agreement is projected to boost Canada’s exports to South Korea by 32% and Canada’s economy by $1.7 billion annually.

Once the agreement is ratified by parliaments on both sides, it will eliminate virtually all tariffs on 98% of bilaterally traded goods within a decade of its implementation.

Tariff elimination will be beneficial to the Canadian firms because South Korean tariffs currently average about three times Canada’s – 13.3% versus 4.3%.

The biggest beneficiaries are South Korean automobile exporters and Canadian agriculture exporters, particularly beef and pork farmers as well as the forest industry and sea food exporters. The 6.1% tariff on South Korean cars exported to Canada will be eliminated within three after FTA takes effect and Seoul will do away with the 40% tariff on Canadian beef within 15 years.

Mr. Harper said Canada hopes the agreement will help “rapidly develop economic ties between our two countries.”

The deal may enable South Korea to win an even bigger prize: membership in the Trans-Pacific Partnership. Canada is a part of TPP, a U.S. led group which is trying to forge a pan-Pacific free-trade area.

“I look forward to having support from the Canadian government in the event that South Korea opts to joins the TPP,” Ms. Park said.

Opposition from Canada’s auto sector as well South Korea’s ban on Canadian beef were major factors that stalled talks in 2008.Seoul lifted the ban on Canadian beef in 2012.The discovery of a case of mad-cow disease in Alberta a few years earlier, led to the imposition of the ban.

In order to reach a deal, Canada had to consent to phase out its tariff on South Korean automobiles much faster than initially planned, according to the people familiar with the situation in Ottawa.

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Canadian Prime Minister Stephen Harper meets autoworkers at Ford Motor plant in Oakville Ont.

Source: Canadian Press

The Ontario government and Ford Motor Co. of Canada, Ltd., criticized the federal government saying the free trade agreement it reached with South Korea fails to protect the auto sector in Canada.

“Ford has proven that it can compete and win in the global marketplace when there is a level playing field,” said president and CEO Dianne Craig.

“But no Canadian manufacturer can compete with a market controlled by non-tariff barriers and currency manipulation.”

Canada imported 124,000 cars from South Korea in 2013 while exporting approximately 2,000 there indicating a considerable imbalance of auto exports between the countries.

The State of Ontario filed a request to Ottawa to at least match the covenants signed in the U.S. negotiated deal with Korea by securing a five-year phase-out of tariffs. Also the provisions should include a “snap-back” provision in which tariff reductions could be rolled back if it Seoul ever used non-tariff barriers to thwart Canadian exports of autos and parts into the country. However the deal proved to be short on both counts.

Stephen Harper dismissed Ford’s condemnation of Canada-South Korea trade deal.

“What we’re doing here is allowing other Canadian companies and other Canadian sectors to have the same access that Ford already has,” Mr. Harper told reporters in Seoul. “Ford supported the Korea-U.S. free trade agreement, thereby Ford has access through the U.S. to the Korean market.”

History has shown that trade agreements have proved to be the best tonic for economic growth in Canada and a good way to provide high-value jobs for Canadians but adverse impact on the auto industry sector raises doubt whether this pact will benefit Canada.

References:

  1. http://pm.gc.ca/eng/news/2014/03/11/canada-korea-free-trade-agreement-ckfta-benefits
  2. http://www.theguardian.pe.ca/Business/2014-03-11/article-3644048/Canada-and-South-Korea-announce-they-have-concluded-a-free-trade-deal/1
  3. http://business.financialpost.com/2014/03/11/stephen-harper-dismisses-ford-criticism-of-canada-south-korea-trade-deal/
  4. http://www.businesskorea.co.kr/article/3638/korea-canada-fta-korea-canada-fta-creates-us17-trillion-north-american-free-trade
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