Inside Canada’s New Free Trade Deal with South Korea

Prime Minister Stephen Harper is touting a free-trade deal with South Korea as a major boost for Canadian exporters looking for a toehold into the lucrative Asian marketplace.

The announcement puts an end to nearly a decade of on-again, off-again talks, and marks Canada's first free-trade foray into the Asia-Pacific region, which the governing Conservatives have targeted as essential for the country's economic well-being...

Once in force, it will eliminate virtually all tariffs between the countries, with Korea cutting 81.9% of duties upon the first day of the deal coming into force, and Canada removing 76.4% of levies.

Some tariffs, particularly in agriculture, will take more than a dozen years be fully phased out.

Government documents noted that Canadian firms stand to make gains because South Korean tariffs currently average about three times Canada's—13.3% as opposed to 4.3% respectively.

Officials say the pact is fully fleshed and not an agreement in principle, as was the case with the European Union deal, and could come into effect within a year.

The agreement is also different in that it does not involve sub-national procurement, so Ottawa will not require provincial approval...

Stakeholders representing the aerospace, pork and beef industries ... were enthusiastic with what the elimination of South Korean tariff potentially could mean for their producers.

According to the government release, the deal is expected to increase Canadian exports to South Korea by 32% and expand the economy by $1.7 billion...

The biggest winners from the Canadian side will likely be in the agriculture sector, particularly beef and pork, the forest industry and seafood exporters, all of whom face stiff tariffs for shipping into the Korea market of 50 million people.

But Ottawa was already bracing for blow-back from Ontario and the domestic auto sector, which will see a 6.1% duty on Korean exports of Hyundai and Kia vehicles eliminated over two years once implemented, making the strong-selling brands even more competitive in the Canadian market.

... early Tuesday when one of Canada's leading automakers announced it refuses to support the deal, saying South Korea will remain "one of the most closed automotive markets in the world."

Ford of Canada Ltd. said previous South Korean free trade pacts signed with the United States and European Union "have failed to reverse this one-sided automotive trade flow."

The automaker said South Korea maintains a closed market through non-tariff trade barriers and "actively intervenes in its currency to unfairly subsidize its exports."...

Ontario had asked Ottawa to at least match the U.S. negotiated deal with Korea by securing a five-year phaseout of tariffs, and to include a "snap-back" provision by which tariff reductions could be rolled back if it was shown that Seoul was using non-tariff barriers to thwart Canadian exports of autos and parts into the country. But the deal fell short on both counts...

Material provided by the federal government estimated that damage to the Ontario auto sector would be limited to about 0.2% of production, or 45,000 vehicles annually, noting that 88% of cars produced in Canada are for export...

The successful conclusion, the second significant deal within a year, likely sends a signal to other potential free-trade partners that Ottawa is currently negotiating with, including India, Japan, and the countries of the TransPacific Partnership, that it is a serious negotiator, said Paul Evans, director of the Institute of Asian Research at the University of British Columbia.

This has been excerpted from the 11 March 2014 article by the Profit Guide and is available in its entirety at http://www.profitguide.com/manage-grow/international-trade/inside-canadas-new-free-trade-deal-with-south-korea-63014