2013

Trade with Korea and Canada: 3. the cheese smugglers (the story of tariffs)

When all the high-level talks are done, how are you and I affected by Korea-Canada economic relationship?

I once carried soju into Canada and had to pay duties and taxes on them. But beware, these duties and taxes could really get you if you bring in dangerous substances, like – wait – cheese, milk and butter (here is an opinion piece you can read for reference: here).

These “duties” (but not the regular sales taxes, such as HST in Ontario) are also known as “tariffs” and these are basically special taxes on imports. Tariffs are one of the ways by which the high-level trade talks have real effects on you and me. For one, I make sure that I bring no more than a couple of bottles of soju (duty and tax free up to 1.14 litres, see here). For you (and me as well), it may be one of the reasons why you can’t afford a Swiss cheese for every meal, but you can get a brand new Samsung Galaxy for free under a fixed year contract (maximum duty for fresh cheese is 245.5%, while cell phones are duty free; see HS Code 0406.10.20 for fresh cheese and 8517.11.00 for cell phones at here).

For the creative types, it is also a reason for starting an illegal cheese-smuggling-ring. Selling smuggled (by definition duty free) “white-gold”, the mozzarella, in Canada is a highly profitable business, albeit illegal (see here).

The tariff rates for goods that are traded between Korea and Canada are governed by the principles of “General Preferential Tariff ”, or GPT, and the “Most-Favoured-Nation”, or MFN (see here).

GPT refers to Canada’s commitment under the UN Conference on Trade and Development (“UNCTAD”) recommendation to provide preferential treatment to the developing nations. Understandably, GPT came into existence in 1974, thus explaining why Korea was granted a preferential treatment for being a developing country. You should note that GPT expires every 10 years, and the current GPT thus will expire on 2014 (specifically, on June 30). Unsurprisingly, there is a proposal to withdraw Canada’s GPT concession to Korea (see here).

MFN is Canada’s obligation under the General Agreement on Tariffs and Trade (“GATT”) and the World Trade Organization (“WTO”). GATT Article I titled “General Most-Favoured-Nation Treatment” provides the following (see here):

  • With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation… any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.

Under the MFN obligation, as the Article plainly explains, the tariff rate Canada offers to any WTO member country must be offered to Korea as well “immediately and unconditionally”.

That said, why do people then waste their efforts in signing the so-called Free Trade Agreements (“FTAs”), or recently re-branded as Economic Partnership Agreements (“EPAs”)? After all, if the Canadian and EU delegations spend years to conclude an EPA, plus hotel rooms and transatlantic airfares on taxpayers’ dime, and Korea can sit back and rip all the benefits just as well, why risk protests and tear gases to have them signed?

The reason for it is in GATT Article XXIV, which allows for preferential treatment (including preferential tariff rates) under strictly circumscribed circumstances, where so-called EPAs or customs unions are in place. In essence, preferential treatments under EPAs, such as North American Free Trade Agreement (“NAFTA”) and recently signed Korea-US FTA, are legally allowed ways to confer better tariff rates to certain countries.

Currently, Korea and Canada do not have  such an agreement in place between them. As such, Canada can only confer what it confers to any other WTO countries (other than the countries with which Canada concluded a FTA or an EPA) under the MFN principle; and vice versa for Korea is also true. However, Korea-Canada FTA negotiation has been in the works since 2004 (see here). It is imaginable (and I emphasize “imaginable”, as opposed to “expected” or “anticipated”) that the FTA could bring about more robust trade relationship, especially by reducing tariffs on imports of Canadian agricultural products and Korean manufactured products (such as automobiles).

That said, I won’t bet on soju or Korea cheese getting any cheaper to import though.

1 reply »

  1. Hi there,

    Happy Easter!

    Do you have a detailed information on an event happening in Vancouver around May-July? Who is coming?

    Also I am in a final stage of setting up Gala Concert in September.

    Location: Surrey, BC (Greater Vancouver) and Edmonton, Alberta Musicians: Louis Choi (Counter Tenor) Soo Jung Kim (Soprano) Gamin Hyosun Kang (Piri &Saenghwang) Yoonmi Han (Accompanist) –from Korea Dr. Jacques Depres (Piano, Professor of U of Alberta) Mr. Chris Mitchell (Trumpet, Member of Vancouver Symphony Orchestra) and Three Local Musicians

    Previously I have organized 2010 Winter Olympics Korean Music Festival, 2012 Yeosu Korea Expo Gala Concert

    I will give you more details later.

    Thanks,

    Sam

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