Canada, South Korea Clinch Trade Agreement

13 March 2014

Canadian Prime Minister Stephen Harper and his South Korean counterpart, President Park Geun-Hye, confirmed on Tuesday that their two countries had concluded negotiations for a bilateral trade pact. The news, announced in Seoul on Tuesday, marks Ottawa's first trade agreement with an Asia-Pacific partner.

The deal has been nearly a decade in the making, with negotiations kicking off in 2005. The talks hit a snag in 2008, however, as a result of disagreements over automobile exports, as well as a South Korean ban on imported Canadian beef. Seoul lifted the beef ban in 2012, which reportedly helped pave the way for talks to resume. (See Bridges Weekly, 25 January 2012)

Harper, in a video posted on his official website ahead of the Seoul trip, heralded the agreement as one that will give the Canadian economy "good, if not better free trade access than virtually any other developed country."

Farm, auto trade

Overall, Seoul will remove duties on 98.2 percent of tariff lines, while Ottawa will lift duties on 97.8 lines of its own.

Within these, the trade pact is expected to significantly lower barriers on automobile and agricultural trade between the two sides, phasing out Canada's 6.1 percent tariff on South Korean car imports over three years and slashing South Korea's tariffs on Canadian beef and pork over 15 years.

Fears of losing out to the US and EU, which already have deals with South Korea, were largely seen as drivers for Canada to clinch a deal. Ottawa officials have said that a pact with Seoul is essential for ensuring that Canada can remain competitive against these major players.

"Our exports to Korea have declined quite precipitously since the Americans and the Europeans got their trade agreements with Korea," Canadian Trade Minister Ed Fast told CTV, a Canadian television news programme, last week.

Official estimates have placed the gains of the pact at C$1.7 billion (US$1.5 billion) to Canada, with their bilateral trading relationship already valued at C$10.1 billion (US$9.6 billion) in 2012.

While many Canadian automobile manufacturers have derided the deal, saying that there are not sufficient protections for their industry, some analysts have downplayed those fears, noting that cars made by Korean companies in the US are already being shipped into Canada duty-free, due to the existing trade deal that Ottawa has with Washington.

However, some critics, such as the left-leaning Council of Canadians, argue that the US' trade deficit with South Korea has worsened in the two years since their agreement entered into force, and have questioned whether an Ottawa-Seoul deal may have the same alleged impact on Canada. (See Bridges Weekly, 29 February 2012)

Asia engagement

The Canada-South Korea pact is viewed by proponents as a step toward increasing Canada's engagement with the Asian region. Ottawa is also involved in trade pacts with other Asian partners, such as the 12-country Trans-Pacific Partnership (TPP) talks, which Seoul has lately expressed an interest in joining.

Regarding the TPP talks, Park said that she has requested Harper's support in achieving the approval of Seoul's membership bid. In order to join the negotiations, all current TPP members must agree. While existing members have said that they welcome South Korea's interest, the US has been among those to say that they plan to conclude the talks with the current group of 12, with others to sign on later.

Seoul is also involved in a series of negotiations of its own, including the 16-country Regional Comprehensive Economic Partnership (RCEP), a bilateral pact with Australia, and a trilateral deal with Japan and China, to name a few.

Next steps

The deal still needs to go through domestic ratification processes in both Seoul and Ottawa before it can enter into force. Harper has said that the earliest this might happen would be 2015.

ICTSD reporting; "Canada Confirms Plans for Free-Trade Pact with South Korea," WALL STREET JOURNAL, 9 March 2014; "South Korean trade deal sets up fight between auto, agriculture sectors," CBC NEWS, 10 March 2014; "Canada, South Korea close to free trade deal: Canadian PM," REUTERS, 9 March 2014; "Harper heads to Seoul as critics warn South Korea free-trade deal could flood Canadian market with foreign cars," NATIONAL POST, 9 March 2014; "Canada Says South Korea Trade Pact to Help Beef Producers," BLOOMBERG, 11 March 2014; "Analysis: Pact with Seoul helps level the playing field," THE GLOBE AND MAIL, 11 March 2014.

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