The Canadian government was busy touting the benefits of the South Korea free trade deal today as federal ministers were scheduled to appear in Saint John, Toronto, Saskatoon and Kelowna.
Agriculture minister Gerry Ritz hosted the Saskatoon event at the Saskatchewan Pork Development Board. He intends to lead a trade mission of agriculture groups to South Korea next month to take advantage of the agreement.
In a release, the government said the “landmark” deal should boost Canada’s economy by $1.7 billion and increase Canadian exports to South Korea by 32 percent.
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Many Canadian economists are also praising the deal, including J.P. Gervais, senior economist with Farm Credit Canada.
Gervais said South Korea’s 2012 trade agreement with the U.S. proves that economists aren’t blowing smoke when it comes to freer trade.
In 2011, before the U.S,-Korea deal was finalized, Canada sold $233,409,582 pork to South Korea. In 2013 Canada exported $76,145,689 in pork to Korea.
“I get the feeling sometimes when I’m talking about this that (people think), ‘oh yes, he’s just preaching. Show me the evidence,’ ” 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.”
On March 11, prime minister Stephen Harper and South Korean president Park Guen-hye signed a free trade agreement in Seoul, announcing it represented the “conclusion of negotiations” for the deal.
The media and economists responded quickly to the official signing, 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 the elimination of tariffs does result in winners and losers, but the impacts of freer trade are much broader.
A University of Toronto report, evaluating what happened to Canada’s economy following NAFTA, concluded the trade deal pushed Canadian business in a positive direction, Gervais said.
“It’s not just about exports and imports. The biggest gain from this deal we have with the United States is how its 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 boost productivity
“The car industry has had some issues, in terms of productivity and being able to compete in the global marketplace.”
David Sparling, Ivey Business School professor and chair of agri-food innovation, said the auto industry is a huge 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 number two.
“Auto is big…. The economic benefits are massive. It’s a very important industry,” Sparling said, adding governments and economists should be concerned about the competiveness of the auto sector.
“(But) that’s a different question from: should we not have any trade deals because we want to protect auto?” Sparling said, who noted the Korean agreement is precisely what Canada needs.
“Trade deals … with high value markets…. It’s exactly what we want to be doing…. There are huge opportunities for us.”
The Canadian Meat Council said South Korea imports about $2 billion in 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,” said council executive director Jim Laws in a statement.
When the deal takes affect, likely in 2015, Korea will immediately eliminate a 10 percent tariff on canola seed and phase out a five percent duty on crude and refined canola oil.
Gervais said the tariffs sound minor, but they do 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.”
Looking beyond tariffs and the Korean deal, Gervais said the World Trade Organization has become less significant as countries pursue bilateral trade deals, but the WTO remains important for other reasons.
As tariffs are reduced, non-tariff trade barriers around food safety and growth promotants like ractopamine become more critical.
“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.”
South Korean tariff reductions, as part of Korea-Canada free trade agreement:
Beef:
• 40 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.
• 18 percent tariff on offal eliminated in 11 equal annual steps (1.6–1.7 percent each year)
Pork:
• Duties of 22.5 percent on fresh chilled pork and 25 percent on frozen pork eliminated in five to 13 years
Canola:
• 10 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
Sources: Government of Canada, Pulse Canada, Canadian Cattlemen’s Association
