Prime Minister Stephen Harper is touting free trade with South Korea as a historic door-opener for Canadian companies in the fast-growing Asia Pacific market.
But the deal, announced in Seoul Tuesday, is firstly about playing catch-up to rivals in the United States, Europe and Australia – countries that already have deals with the fast-growing manufacturing powerhouse. Exporters from these countries enjoy a large and growing tariff edge, with often devastating consequences.
Canadian exporters of beef and pork have seen once-promising markets virtually wiped out. CN Rail's Korean-bound shipments via West Coast ports have dwindled to nothing in the past couple of years. Overall, Canadians exports to South Korea are down roughly 30 per cent, or $1.5-billion, since the U.S.-Korea free trade deal took effect two years ago.
The federal government hopes to regain some of that lost market share by quickly ratifying and implementing the agreement – perhaps as early as the first half of 2015. Unlike the recently signed European free trade agreement, the negotiations are complete and the deal simply has to be drafted into a legal text and translated.
Among the highlights of the agreement: South Korea will eliminate tariffs on 98.2 per cent of items – most right away, and the rest over three to 12 years. These include duties of up to 72 per cent on beef, 25 per cent on pork, 20 per cent on lobsters, 18 per cent on frozen French fries and 15 per cent on ice wine.
Korean tariffs are three times higher than Canada's – averaging 13.3 per cent versus 4.3 per cent in Canada, which has committed to scrapping duties on most products except dairy and poultry.
Among the most fractious Canadian concessions is the elimination of a 6.1-per-cent tariff on imported vehicles in three equal cuts over two years. The move is already causing distress among some auto makers – most notably Ford Motor Co. of Canada, which fears that Korean-made Hyundai and Kia cars may flood into Canada, without unfettered access for their vehicles in the Korean market.
Exporters and business leaders say the deal is necessary to level the playing field in South Korea, the world's 15th largest economy.
But it's also about boosting future exports, and diversifying the country's trade beyond the U.S., the destination of 70 per cent of Canadian exports. Ottawa estimates the deal will increase exports to Korea by a third – the equivalent of a $1.7-billion boost to the economy.
Combined with the European free trade deal, the agreement creates vast new opportunities for exporters, explained John Manley, president of the Canadian Council of Chief Executives. "With these two deals, we've changed the trade landscape for Canadian businesses in a relatively short period of time," he said. "Now it's up to companies to take advantage of it."
Reaching a deal with South Korea may now help get a similar deal faster with Japan, he said. "Nothing gets Japanese attention like doing something with Korea," Mr. Manley said. And with Korea looking to join Canada in the Trans Pacific Partnership talks, Ottawa's leverage to do a deal with South Korea has never been higher, according to Mr. Manley.
Negotiations with South Korea started in 2005 and stalled completely three years later, before being revived last year.
Canadian beef exporters have seen their market dwindle to less than $5-million last year from $50-million a decade ago. Pork producers have experienced a similar loss of market share in South Korea – to roughly $70-million in 2013 from $223-million in 2011. Canada has been running a large trade deficit with South Korea in recent years. In 2012, exports to South Korea totalled $3.7-billion, while imports were $6.4-billion.
The auto trade is now heavily in Korea's favour. Canada imported 131,174 South Korean-made vehicles in 2012. Canada exported fewer than 3,000 cars to South Korea.
Canada is already playing down the potential negative fallout on the Canadian auto sector. Officials point out that roughly 85 per cent of vehicles made in Canada are exported, and therefore are largely unaffected. And nearly half of the Korean cars sold here, including Hyundais and Kias, are manufactured at plants in the U.S., and therefore enter Canada duty-free under the North American free trade agreement.