Last time I talked about how the free trade agreement (FTA) between Canada and Korea could be a positive move for those who are currently studying Korean culture and language. Now it’s time to take a look at what exactly is being negotiated, what’s at stake, and how Canada might be able to benefit from the proceedings.
For those of you unfamiliar with how a bilateral FTA actually works, I’ll provide a basic idea. When countries trade with each other, a tariff (sort of an additional tax) is placed on the products that travel between the two nations. This is to insure that local businesses are given a fighting chance and is why imported products are often more expensive than their domestic counterparts – the added cost covers tariffs, import licenses, etc. So a free trade agreement is exactly what it sounds like – no tariffs! This means that Koreans and Canadians would be able to sell things to each other without having to pay any more than the cost of shipping, making exporting and importing goods to and from those countries quite a bit more lucrative. Understandably, though, this has a lot of people both excited and worried.
Word on the street is that Canada’s agricultural sector is very optimistic about the trade agreement, as South Korea currently imports a great deal of its produce from overseas. According to Michael McCain, president and CEO of Maple Leaf Foods – one of Canada’s largest meat producers and exporters – “South Korea, with about 50 million middle income consumers and only 30 per cent of its land suitable for commercial farming, is our country’s fifth-largest agriculture and food export market. It is heavily dependent on food imports, with a demand that exceeds $28-billion annually.”
Considering Canada’s size and amount of arable land versus that of South Korea, it may come as no surprise that Canada’s agricultural sector could benefit immensely from the FTA. Farmers, who are hoping for speedy passage of the agreement, have been lamenting the loss of potential export capital to other countries that have already signed FTAs with South Korea. McCain adds, “Since the U.S. signed its trade agreement with South Korea, Canada’s agriculture and food exports to that country have plummeted from more than $1-billion to just over $300-million, a loss of more than 70 per cent over the past two years alone.” However, while there appears to be much money to be made in the area of agriculture, representatives of Canada’s auto industry seem to have little good to say about the FTA.
In an interview on CBC’s The Lang & O’Leary Exchange, the president of Unifor (Union for Canada – a merger of the Canadian Auto Workers Union and the Communications, Energy and Paperworkers Union of Canada), Jerry Dias expressed grave concerns for Canada’s auto industry in light of the FTA negotiations. “The Korean market is structured for Korean exports. This is all about them . . . It’s just thousands and thousands of more jobs lost. The trade deficit with Korea already was $3 billion in 2012, $2.7 billion last year and it’s just going to get worse.” Dias closed the interview by saying, “They ship over 200,000 vehicles a year in our market — they should be putting an assembly plant in Canada. If they want to play a role, then build here. We ship 100 cars a year.”
Dias’s lamentations are echoed by many others who are afraid that an FTA with South Korea could be catastrophic to Canada’s auto industry, especially as its sales in the United States have been adversely affected by Korean imports to the U.S. While I certainly agree with Dias’s idea of companies such as Kia and Hyundai building branch plants in Canada, I feel that the figures he presents ignore a gaping question. If Canada’s auto trade deficit with Korea is currently as large as he says – at 2,000 to 1, an already massively unbalanced figure – one has to wonder whether the FTA would be all that damaging to an already dwindling industry. If the auto trade deficit is only going to grow wider anyway, then why forgo the millions of dollars in agricultural exports in order to preserve an industry that only five years ago required government bailouts to sustain itself? I feel as though this is something to consider.
Join me next time, when I talk about other industries that might be affected by the FTA and what opportunities students and businesspeople can expect in Korea in the near future!