Trump’s tiff with South Korea may benefit Canada

President threatens to tear up trade deal with South Korea, which gives American beef and pork preferred treatment

Canada, struggling to compete in the South Korean meat market behind the United States and Australia, could take a leap forward if U.S. President Donald Trump carries through on threats to tear up the U.S.-South Korea free trade deal.

Trump thinks the five-year old agreement is unfair to the United States because the Asian country’s trade surplus with the U.S. has doubled since it was signed.

“If the U.S. rips up its free trade agreement with South Korea, they’ll be back up at 40 percent (tariff on beef sales),” said John Masswohl, the government and international relations specialist at the Canadian Cattlemen’s Association.

“If it happened today, we’d go from being eight percent behind them to being eight percent ahead of them.”

Similarly for U.S. pork exports, if the U.S. ended its trade deal with South Korea, it would mean Canada would have lower tariffs and better access to that market than the Americans.

“Anything that makes competitors disadvantaged has a positive effect for us,” said Cesar Urias, Canadian Pork International’s international trade expert.

Canada’s weaker position in South Korea for beef and pork compared to the U.S., Australia and European Union is due to South Korea signing free trade deals with those countries first.

South Korea agreed with all the countries it has agreements with to gradually reduce high tariffs on beef imports, but because their deals came into force years before Canada’s, the Americans and Australians are seeing reductions first.

Currently, Canada, which signed its deal with South korea in 2015, pays eight percent more in tariffs on beef compared to the U.S., a spread that is expected to continue until almost 2029.

If the U.S. leaves the free trade deal, it would immediately be disadvantaged, and that disadvantage would steadily grow if U.S. beef faces South Korea’s Most Favoured Nation tariff rate.

Canadian beef currently pays a 32 percent tariff, while U.S. beef pays 24 percent. Australian beef pays 29.3 percent.

Those tariffs are scheduled to be reduced in stages until they disappear.

Tariffs are less steep for pork, with Canada’s trade deal reducing them to an average of less than 10 percent in 2017 from 21 percent in 2015, with total elimination scheduled for 2027. Some categories of pork already enter South Korea tariff-free.

That’s been a relief for the Canadian industry, which had been struggling in the market because of the head start the U.S. and European Union had with their trade deals.

“We had a good market share … before, but more and more the U.S. and Europe took part of that share,” said Urias.

“We had to wait years to be competitive (again) and become one of the preferred suppliers of pork.”

If the U.S. pulls out of its trade deal with South Korea, American pork would face a massive disadvantage. Urias has trouble believing that Trump would be able end the deal without facing a wall of opposition from the U.S. pork industry.

Canadian Agri-Food Trade Alliance acting executive director Martin Rice said a failure of the U.S.- South Korea deal would not necessarily create a windfall for Canadian meat.

Market access gains in South Korea might be offset by lower North American prices.

Pork that would have gone from the U.S. to South Korea would stay in North America, or would have to find markets somewhere else, and that would likely reduce the North American price.

“It could end up as a wash, really,” said Rice.

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