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Sales staff work on deals with customer inside Hyundai of Mississauga. (J.P. MOCZULSKI FOR THE GLOBE AND MAIL)
Sales staff work on deals with customer inside Hyundai of Mississauga. (J.P. MOCZULSKI FOR THE GLOBE AND MAIL)

Ottawa nears South Korea trade pact Add to ...

Canada is on the verge of clinching a free-trade deal with South Korea after more than half a decade of on-and-off negotiations, and an announcement is expected early next week.

Prime Minister Stephen Harper will leave for Seoul Sunday to meet his South Korean counterpart, say industry sources who’ve been informed of the trip.

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The deal would be Canada’s first trade agreement with a major Asian nation, giving the country a new foothold in the fast-growing region.

An agreement would come over the vigorous objections of Ford Motor Co. of Canada Ltd., which has warned that free trade with that country would be a disaster for the auto industry in Canada.

But a deal is broadly supported by the vast majority of other exporters and business groups, including Japanese car makers, aerospace manufacturers, various food and agricultural producers, and high-tech companies, such as BlackBerry Ltd.

A key turning point in the lengthy negotiations came last October at the Asia-Pacific Economic Co-operation summit in Bali, Indonesia, where Mr. Harper and South Korean President Park Geun-hye agreed to accelerate efforts.

Canada has been anxious to get a deal with South Korea – particularly after the United States and the European Union completed free-trade deals of their own. Canadians exports to South Korea are down roughly 30 per cent, or $1.5-billion, since those deals took effect in 2012, widening this country’s large trade deficit.

Canadian exports, such as beef and pork, have been hammered in the South Korean market, where tariff cuts have made U.S. and European products significantly less expensive.

“We need to be in there on the same terms as our competitors,” said John Weekes, a former top Canadian trade negotiator and now a consultant with law firm Bennett Jones. “It’s too bad we didn’t do it a while ago.”

Government officials declined to confirm media reports that a deal is near. “We don’t have a deal, at this point. Negotiations are ongoing,” said Rudy Husny, spokesman for Trade Minister Ed Fast.

A tentative deal would still require further negotiations to work out legal details – as was the case with the recently struck European deal.

The key stumbling block for Canada has been the auto sector and the proposed elimination of a 6.1-per-cent duty that Canada levies on vehicles imported from South Korea.

One provision of the deal that appears to be causing a problem is the immediate end of the tariff when the deal comes into force, sources familiar with the negotiations said. That would give Hyundai and other South Korean auto makers an edge over other importers and domestic manufacturers in the Canadian market.

Auto makers that assemble cars in Canada are split on the issue. Ford president Dianne Craig has been the most vocal opponent, arguing in part that an earlier South Korea-U.S. deal failed to remove South Korean trade barriers, so Canada is almost certain to be unsuccessful in attempting to do that.

“This is not good for autos, which means it’s not good for the economy, which means it’s not good for Canadians,” Ms. Craig said in January. She warned that South Korea has shown that it’s not a “good fair trade partner” by maintaining import restrictions.

Japan-based auto makers have come out in support of a deal, as long as the federal government vigorously pursues a bilateral agreement with Japan and the larger Trans-Pacific Partnership. Removing the tariff on South Korean vehicles would have the greatest impact on the Japanese companies, which will still face the tariff on vehicles they import from Japan, many of which compete directly against vehicles imported from South Korea.

Chrysler Group LLC dropped its opposition after chief executive officer Sergio Marchionne met with Mr. Harper last month. Mr. Marchionne said Mr. Harper told him that Chrysler did not oppose the U.S. deal with South Korea so it should not oppose a Canadian deal. General Motors of Canada Ltd., whose parent company is partly owned by the federal and Ontario governments and has assembly operations in South Korea, has not taken a position publicly.

Canada has run a large trade deficit with South Korea in recent years. In 2012, exports to that country totalled $3.7-billion in 2012, while imports reached $6.4-billion.

Editor's note: This article has been changed to correct where Mr. Weekes is employed as a consultant.

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