S. Korean trade deals put pressure on Canada
CTV News | 6 Dec 2010
S. Korean trade deals put pressure on Canada
BARRIE McKENNA AND GREG KEENAN
Canadian companies risk losing ground in South Korea now that both the United States and the European Union have sealed free-trade deals with the Asian export powerhouse.
Canadian beef exporters, for example, will face a 40 per cent price penalty compared to their U.S. rivals if the U.S. Congress ratifies a landmark agreement completed in recent days.
“We’ll be left out in the cold,” predicted John Weekes, a former top Canadian trade negotiator and now a consultant with law firm Bennett Jones in Ottawa.
“It doesn’t make sense not to have a deal with a major market like Korea when the Americans and Europeans do.”
Mr. Weekes said the U.S. deal, which follows an earlier European agreement, puts intense pressure on Canada to do a deal of its own in the next few months.
Ottawa said it will look at the revised U.S. deal to see if it changes the negotiating landscape for its own proposed deal.
“We will be assessing the revised U.S.-South Korea free-trade agreement to consider its implications for Canada’s trade negotiations with Korea,” Trade Minister Peter Van Loan said. “The government of Canada is determined to enter into a trade agreement only if it is in the best interest of Canadian workers and businesses.”
The Obama administration completed talks in recent days on what would be its largest free-trade agreement since the 1994 North American agreement with Canada and Mexico. The talk had been hung up over U.S. demands that Korea open its market to vehicles made by the Detroit Three automakers.
The United States agreed to lift its 2.5-per-cent tariff on imported Korean cars in exchange for allowing General Motors, Ford and Chrysler to each sell up 25,000 cars a year in South Korea. The deal must still be ratified by the U.S. Congress.
The U.S.-Korea deal should help pave the way for a Canadian deal, suggested Lawrence Herman, a trade lawyer at Cassels Brock in Toronto.
“It should be possible to remove the remaining issues,” Mr. Herman said. “It will take a bit of horse-trading on autos and beef. Ottawa will have to show that we’ve gained more than we’ve given up.”
Canada began exploratory talks on a possible free-trade deal with South Korea six years ago. But the talks stalled because of Korea’s reluctance to open its auto market, the recession and a continuing ban on Canadian beef triggered by several cases of mad-cow disease.
Before the recession hit in 2008, two-way trade was worth roughly $10-billion. Canada’s major exports to South Korea are oil, wood pulp, nickel, machinery and aluminum. Korea’s leading exports are electrical and electronic equipment, cars, iron, steel and machinery.
With the exception of beef and autos, the Canada-Korea negotiations are virtually done. But to get a final deal, Ottawa will want to see Korea at least partially lift its ban on Canadian beef.
Negotiators will also have to appease the domestic automakers. Canadian auto companies are demanding “free and non-discriminatory access” to the Korean market before they’ll back a lifting of the tariff on Korean vehicles, according to Mr. Herman.
Canada imposes a 6.1-per-cent tariff on vehicle imports from South Korea, which consist mainly of vehicles sold by Hyundai Motor Corp. and its Kia Motors Ltd. unit.
They are among the fastest-growing auto makers in Canada in terms of sales. Hyundai sold 72,860 South Korean-made vehicles in the first 11 months of 2010, which was the highest total of vehicles imported from outside North America by any auto maker operating in Canada.
Kia sold 41,602 South Korean-made vehicles. The total of 114,462 imported by the two companies represented 8 per cent of the 1.445 million vehicles sold in Canada as of the end of November.
Exports to South Korea of vehicles made in Canada are negligible.
The 6.1-per-cent tariff applies to all vehicles imported from outside North America.
The prospect of eliminating the tariff in free-trade agreements with South Korea and the European Union would hurt sales by Japan-based auto makers in Canada, the Japanese Automobile Manufacturers Association of Canada argues in a study of the impacts such agreements would have on the auto industry.
The association said sales by Japan-based auto makers would fall 2 per cent if the tariff were eliminated for South Korean and Europe-based auto makers, while they would rise 10.5 per cent for European companies and 12 per cent for South Korean vehicle manufacturers.
JAMA said this would lead to a situation in which the Japan-based auto makers would be penalized, even though Honda Motor Co. Ltd. and Toyota Motor Corp. are the only Asia or Europe-based auto makers that have invested in production facilities in Canada.
The Canadian Vehicle Manufacturers Association, which represents Chrysler Canada Inc., Ford Motor Co. of Canada Ltd. and General Motors of Canada Ltd., also opposes a free-trade deal with South Korea unless that country’s market is opened to Canadian-made vehicles.
