South Korea trade has broad impact

Spur innovation Loss of tariffs will mean auto sector must find ways to compete

South Korea’s 2012 trade agreement with the U.S. proves economists aren’t blowing smoke when it comes to freer trade, says Farm Credit Canada’s senior economist.


Canada sold $233 million worth of pork to South Korea in 2011, before the U.S.-Korean deal was finalized. By 2013, that had dropped to $76 million.


“I get the feeling sometimes when I’m talking about this that (people think), ‘oh, he’s just preaching. Show me the evidence,’ ” J.P. Gervais said.


“Well the evidence is there…. 2012 was the first year that they (Americans) had (lower) duty access to South Korea and coincidence, I guess not, our (pork) exports dropped.”


Prime minister Stephen Harper and South Korean president Park Guen-hye signed a free trade agreement in Seoul March 11.


The media and economists re-sponded quickly, labelling the red meat industry as a winner and the auto sector as a loser because Canada’s 6.1 percent tariff on imported Korean vehicles will be eliminated.


Gervais agreed that eliminating tariffs does result in winners and losers, but the impacts of freer trade are much broader.


He said a University of Toronto report, which evaluated what happened to Canada’s economy following the North American Free Trade Agreement, concluded the trade deal pushed Canadian business in a positive direction.


“It’s not just about exports and imports,” he said.


“The biggest gain from this deal we have with the United States is how it’s forced businesses to … innovate and be more productive…. And it (offered) more options to consumers.”


Similarly, the South Korean deal should encourage affected Canadian industries, particularly the auto sector, to increase productivity.


“The car industry has had some issues, in terms of productivity and being able to compete in the global marketplace.”


David Sparling, an Ivey Business School professor and chair of agri-food innovation, said the auto industry is a significant component of Canada’s economy. 


Vehicle and transportation equipment ranks first in Canada’s manufacturing sector when it comes to gross domestic product. 


Food manufacturing is No. 2.


“Auto is big…. The economic benefits are massive. It’s a very important industry,” Sparling said. “(But) that’s a different question from, ‘should we not have any trade deals because we want to protect auto?’ ”


He said the Korean agreement is precisely what Canada needs.


“Trade deals … with high value markets … it’s exactly what we want to be doing,” he said. “There are huge opportunities for us.”


The Canadian Meat Council said South Korea imports $2 billion worth of beef and pork annually. Canada could potentially capture 20 percent of the Korean market.


“By the time Canada’s meat processors and exporters regain competitive access, it is projected that annual beef and pork exports will rebound and reach $100 million and $300 million,” council executive director Jim Laws said in a statement.


Korea will immediately eliminate a 10 percent tariff on canola seed and phase out a five percent duty on crude and refined canola oil when the deal takes affect, likely in 2015. 


Gervais said the tariffs sound minor, but they have an impact.


“Ten percent, that makes a difference. We’re not 10 percent more productive than our major competitors,” he said. “(And) it makes a difference to be selling at five percent higher than a competitor.”


Gervais said the World Trade Organization has become less significant as countries pursue bilateral trade deals, but the WTO remains important for other reasons.


Non-tariff trade barriers based on food safety and growth promotants such as ractopamine become more critical as tariffs are reduced.


“Unfortunately we need a forum to address those non-tariff barriers,” Gervais said. 


“I think the WTO is going to be relevant for trade disputes … and bottlenecks at the border.”

  • Forty percent tariff on fresh and frozen beef eliminated in 15 equal annual steps (2.6-2.7 percent each year)

  • Same schedule as tariff phase-out on U.S. beef

  • Eighteen percent tariff on offal eliminated in 11 equal annual steps (1.6-1.7 percent each year)

  • Duties of 22.5 percent on fresh chilled pork and 25 percent on frozen pork eliminated in five to 13 years

  • Ten percent tariff on canola seed eliminated immediately (when deal takes effect)

  • Five percent tariff on crude canola oil eliminated over seven years

  • Five percent tariff on refined canola oil eliminated over three to five years

  • Cereals, flax and pulses tariffs to be eliminated immediately or over a number of years

  • Wheat, three percent 

  • Up to 269 percent duty on barley malt

  • Rye duty up to 108.7 percent

  • Flaxseed, three percent duty 

  • Black, lima, pinto, great northern, kidney, navy beans, 27 percent

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