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To the dismay of some Canadian exporters, free-trade talks with South Korea have reached an impasse. But that shouldn't be the end of any smart free trader's world, given South Korea's refusal to lower its non-tariff barriers to automobile trade despite almost 2½ years of negotiations. The South Koreans won't even grant the same automotive concessions to Canada that they recently made to the United States, and the U.S. Congress is balking at approval of that free-trade treaty.
The inequity is palpable. Canada currently imposes a tariff of 6.1 per cent on South Korean car imports, mainly vehicles from Hyundai Motor Co. and Kia Motors Corp. North American automotive manufacturers are afraid that the elimination of this duty could trigger a flood of small Korean cars that are not assembled here.
But Korea has far greater barriers, including an 8-per-cent tariff on auto parts and most vehicles and a 25-per-cent tariff on some trucks. South Koreans face tax audits if they buy foreign cars. Korean licence plates are a different size from those elsewhere in the world, so foreign automotive companies must do a separate production run. South Korea applies a tax on automobiles based on engine-displacement size, which disproportionately affects larger foreign cars. It's little wonder that Canada's annual exports of automotive products to South Korea were worth only $11.5-million last year, while the value of Korean automotive exports to Canada was roughly $1.7-billion.
There is much to be gained from a free-trade deal with South Korea, including the elimination of tariff and non-tariff barriers and the easing of restrictions on investment and services. A deal could open doors to other fast-growing economies in that region, if companies used Korea as a strategic base. Canada could snare major export gains in agriculture, fish, forestry, information technology and industrial equipment. After all, with GDP of more than $1-trillion, South Korea is the 12th-largest merchandise-trading nation in the world. No one wants the negotiators to give up.
But while International Trade Minister David Emerson has said the talks have not irreparably broken down, he made it clear that Canada is "not going to rush into a deal." That is an appropriate stand to take. Canada should not sign a deal that allows South Korea to keep such punitive non-tariff barriers in place. Such trade is neither free nor fair.
