DAVID ADAMS WEIGHS IN ON THE HOTLY DEBATED CANADA-SOUTH KOREA TRADE DEAL AND THE IMPACT IT COULD ACTUALLY HAVE ON OUR INDUSTRY
For some in the automotive industry, the recent conclusion of the Canada-South Korea Free Trade Agreement announced by Prime Minister Stephen Harper and South Korean President Park Geun-hye on March 11th was described in apocalyptic terms.
Much of the conversation around the Canada-South Korea trade deal from automotive opponents relates to the “protectionist” nature of the South Korean market and non-tariff barriers against importers.
In an attempt to address such concerns, Canada has negotiated a specific National Treatment provision, meaning that Canadian goods would be treated exactly the same as homegrown goods in South Korea. Therefore, there can be no special fees, taxes, or levies applied to Canadian vehicle imports. Do these provisions address all of the issues likely raised by vehicle producers in Canada over the course of the negotiations with respect to exports to Korea? Probably not, but as noted earlier, on an objective basis, manufacturers would seem to have at least the opportunity and environment established for success — provided that opportunity is acted upon.
The impact of the trade deal on the Canadian marketplace however, is likely to be of greater interest to the vast majority reading this article.
First, consider that Canada’s 6.1 per cent tariff on vehicle imports coming in from South Korea is not being eliminated immediately. At this point, we still don’t know when the agreement will be implemented even though signs point to that possibly happening early next year.
Phase-out planned
Assuming a January 2015 implementation of the deal, that would mean the tariff on passenger cars would be completely eliminated by January 2017 and that on trucks, two years later.
If the tariff elimination is passed along to consumers, Korean vehicles would be less expensive than they currently are. If consumers are motivated by price alone and therefore purchased more Korean vehicles as a result, this could potentially result in more Korean exports to Canada. I think it is probably fair to say however, that we all know consumers purchase vehicles not on the basis of price alone.
NAFTA considerations
Another significant factor in the trade deal is that not all Hyundai and Kia vehicles sold in Canada are built in South Korea. Many Hyundai and Kia vehicles are built in the U.S. and enter Canada duty-free, provided they meet the North American content requirements under NAFTA (the North American Free Trade Agreement).
But what about the impact of the NAFTA agreement on vehicle production in Canada?
This is an important point because a negative impact on production is not helpful in sustaining and growing vehicle manufacturing jobs.
Currently, for at least the Detroit-based automakers in Canada, more than 85 per cent of their production is exported and almost all of that to the U.S. If there were any production impact from a Korean free trade agreement, it seems likely that a deal with the U.S. would have a greater effect on production in this country than the Canada-South Korea agreement, since Korean imports to the U.S. would displace Canadian exports south of the border.
