Canada, South Korea Broker Landmark FTA Deal

by Mary Swire, Tax-News.com, Hong Kong

13 March 2014

In what has been described as, predominantly, a cancellation of tariffs on Canadian beef imports into South Korea in return for the elimination of duties on South Korean car imports into Canada, the two countries announced on March 11 that they have agreed the terms of their long-delayed negotiations for a free trade agreement (FTA).

FTA talks between Canada and South Korea were put on ice in 2008 when the latter maintained its import ban on Canadian beef over "mad cow disease," leading to a challenge by Canada at the World Trade Organization (WTO). That ban was lifted in January last year, and, in reply, Canada terminated the relevant WTO dispute settlement panel.

The announcement of the successful conclusion of the FTA was made following a meeting between Canadian Prime Minister Stephen Harper and South Korea's President Park Geun-hye in Seoul. In a joint statement, the two leaders confirmed the FTA to be "a 21st century trade agreement that will strengthen our trade and investment ties across the Pacific, translating into increased export opportunities."

The agreement, it was added, "covers virtually all sectors of Canada-South Korea trade, including increased access for goods, services and investment. Once implemented, the agreement is expected to bring significant benefits for the Canadian and Korean economies, business communities, including small and medium enterprises, and consumers."

Harper added that "the FTA, Canada's first with an Asian market, will … level the playing field for Canadian companies competing with South Korea's other trading partners, including the United States and the European Union, who already have free trade agreements with South Korea."

When the agreement is fully implemented, South Korea will remove duties on 98.2 percent of its tariff lines covering virtually all of Canada's imports, while Canada will remove 76.4 per cent of its tariffs. Given that the average of South Korea' tariffs are currently three times higher than Canada's (13.3 percent vs. 4.3 percent), it was said by the Canadian Government that the tariff elimination will be particularly advantageous for Canadian businesses exporting to the South Korean market.

In particular, without the FTA, Canada's beef exports would remain subject to a full 40 percent South Korean tariff. Under the new deal, South Korea will remove that tariff within 15 years after the FTA takes effect. That would put Canada on a par with its US competitors, as well as Australian beef exporters when that country's FTA with South Korea comes into effect.

However, there have already been reports that the Canadian Government is under some pressure because of the opening up of the country's car market to South Korean imports. Canada's 6.1 percent import duty on auto imports will be eliminated; in this case, over only two years. While South Korea has also agreed to remove its 8.0 percent import tariff on Canadian cars after the FTA takes effect, Canadian manufacturers point to the non-tariff barriers still hindering their exports.

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