Trade deal between Canada, South Korea meets resistance from auto sector
There's concerns that removing a tariff of 6.1% on auto imports from South Korea will further skew the playing field.
OTTAWA – The Harper government is set to sign a long-sought trade deal with South Korea early next week, despite entrenched opposition by some in Ontario’s critically important auto sector, sources close to the talks say.
Preparations are underway for a signing ceremony in Seoul early next week, ending nearly 10 years of on-and-off talks that one of Canada’s biggest industries has long prevented from reaching the finish line.
Cracks began to appear in the Canadian auto industry’s united front last month when the association representing Japan’s automakers in Canada came out largely in favour of a deal, saying it would complement the agreement signed in the fall with the European Union and ease talks with Japan.
Another impetus was introduced when Korea was able to successfully complete deals with Canada’s two largest trading partners, the US and the European Union, leaving Canada out in the cold.
Government officials in Ottawa have refused to confirm the agreement.
The deal, coming on the heels of an historic pact with the EU, will go a long way towards cementing the Harper government’s expansionist trade agenda, and its stated goal that it wants to be a serious economic player in Asia.
Still, significant opposition remains. Ford of Canada chief executive Dianne Craig recently called the 2012 Korea-US agreement a “disaster” for the sector – even though Ford, along with the General Motors and Chrysler, initially supported the pact.
At issue for Canada is a 6.1% tariff on car imports. Critics fear once it’s removed, it will further skew the automotive playing field between the two countries, with Korean-made brands Hyundai and Kia selling about 90,000 units in Canada annually in direct competition with Canadian-assembled vehicles. Korea also assembles autos in the US, which it exports into Canada duty free.
Ontario’s economic development minister, Eric Hoskins, said Korea out-exports Canada 50 to one in autos. Hoskins said nothing he has heard from Ottawa so far has eased his concern that Canada’s automakers won’t be even more outgunned once tariffs are removed.
“We want a free-trade agreement that’s good for all sectors, but on autos particularly it’s disadvantageous,” he said. “I haven’t been given information to suggest that the improvements that we’ve asked for have been addressed.”
In particular, Ontario and the industry has asked for a slower phase-out of tariffs and a “snap-back” provision allowing Canada to re-impose tariffs if there’s evidence Korea is not meeting its obligations.
With the deal, Canada hopes to arrest the deterioration in exports to Korea since the US agreement went into effect, particularly in the agricultural sector.
But Jim Stanford, chief economist with the Unifor union, which represents Canadian auto workers, says in effect Canada has traded off “billions of dollars” in the auto sector to win over “tens of millions” in more pork and beef exports.
“It’s a trade of cars for pigs and cows,” he said. “The government is willing to sacrifice autos, which is by far the largest trade item with Korea, in order to make some gains in agriculture and that’s all about the government’s political base in the West.”
Rudy Husny, a spokesman for Trade Minister Ed Fast, said Canadian exports to South Korea had fallen by $1.5 billion (about 30%) since the US agreement went into effect.
“We will only sign an agreement that’s in the best interest of hardworking Canadians including though the elimination of Korean tariffs and creation of effective tools to counter non-tariff barriers to trade,” Husny said via email.
The data is not clear cut, however. According to US trade numbers analyzed by Washington-based Public Citizen’s Global Trade Watch, the US has also seen the monthly average of exports to Korea fall 10% from prior to the deal. The US Department of Commerce, however, has noted that Ford has increased its export of vehicles into Korea since the deal.
Aside from the auto sector, most business groups in Canada will welcome the breakthrough, particularly if it is the first step to greater economic penetration into the fast-growing economies of Asia.
“Undoubtedly the Canadian-based auto assemblers are concerned, as they rightly should be, but you can’t make trade policy based on only one sector,” said John Manley, who is head of the Canadian Council of Chief Executives, the country’s most influential business lobby group.
“It’s important from an offensive point of view, but it’s also important defensively because, frankly, the United States got in first and they have been methodically taking market share from Canadian producers.”
South Korea is currently Canada’s seventh largest merchandise trading partner and third largest in Asia after China and Japan. But the relationship has been decidedly one-sided, with Korea exports totalling $6.3 billion in 2012 while Canadian shipments totalled $3.7 billion.
©The Canadian Press