Elusive South Korea free-trade deal ‘very close,’ Flaherty says

Finance Minister Jim Flaherty says Canada is nearing an elusive free-trade agreement with South Korea, but some Canadian exporters warn they are years behind other countries that already have deals with the Asian manufacturing powerhouse.

The long-stalled free-trade talks were restarted late last year as the federal government stepped up efforts to make progress in its push to expand trade to fast-growing Asia and diversify away from the U.S., the destination for 70 per cent of Canadian exports.

 “We’re very close to a conclusion on [South] Korea,” Mr. Flaherty said Monday following a speech to the Asia Society in Hong Kong as he continues a trip to promote last week’s federal budget.

Reaching a final agreement with South Korea pits the interests of auto makers, which have long fought the idea of granting duty-free entry for Hyundai and Kia vehicles into Canada, against those of Canadian agri-food exporters, who are losing market share to rivals from the U.S. and Europe that already have free trade with the Asian nation.

Trade experts said Canada almost certainly will have to make concessions on autos if it wants better access for beef and pork.

“I would assume they’ve done something on autos to get close,” said Peter Clark, an Ottawa-based trade consultant, who does work for Canadian pork producers.

But several auto industry sources expressed doubt that an agreement with South Korea is as close as Mr. Flaherty suggests, in part because the thorny issue of automotive trade appears not to have been settled yet.

Adam Taylor, a spokesman for Trade Minister Ed Fast, would say only that discussions are continuing between Canadian and South Korean officials. “We have encouraged Korea to bring an ambitious approach to these discussions,” he said.

Auto industry sources point to a reorganization of government ministries in South Korea being undertaken by newly elected President Park Geun-hye that includes a shakeup of the trade ministry.

The prospect of an agreement that eliminates a 6.1-per-cent duty Canada applies to vehicles imported from South Korea – particularly if it does not also include ironclad guarantees to eliminate non-tariff barriers there – has united the Canadian units of both U.S. and Japan-based auto makers.

They are opposed to an agreement that gives up the Canadian tariff, pointing to such actions in South Korea as investigations of BMW AG, Toyota Motor Corp., Volkswagen AG and the Mercedes-Benz unit of Daimler AG for price collusion, and raids on the offices of the Korea Automobile Importers and Distributors Association, which represent non-South Korean manufacturers.

On pork, industry sources said South Korea is offering Canada identical tariff terms as what they gave the Americans. Canada had been seeking an accelerated removal of tariffs to match the phase-out schedule of the U.S. and others.

Canadian pork producers have watched helplessly as U.S. competitors, armed with lower tariffs, steal market share in the once-lucrative market. Canada faces tariffs of 25 per cent on frozen pork and 22.5 per cent on chilled pork in South Korea. By 2016, most U.S. pork will enter South Korea duty-free.

Maple Leaf Foods Inc. of Mississauga, Ont., for example, said it’s already losing long-established customers and partners in South Korea.

“We’ve established very strong relationships which I’m now watching dissolve,” said Barry Sutton, vice-president of international sales at Maple Leaf. “The big American packers are lining up who they are going to work with. We’ve had a lot of people desert us, just on the basis of the fact we don’t have a deal and they know we’re going to be out of it competitively for quite some time.”

Even if Canada reaches a deal in the short term, ratification and full implementation could take as long as five years, leaving Canada at a disadvantage.

“If we signed a deal today we would still be playing catch up,” said Gary Stordy of the Canadian Pork Council.

 

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BARRIE McKENNA and GREG KEENAN

The Globe and Mail

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Date Posted

April 01 2013