Canada’s first free-trade agreement with an Asian nation will have a major impact on the agricultural sector here at home.
The pact with South Korea is positive news for cattlemen, who saw the market vanish after bovine spongiform encephalopathy was discovered in an Alberta cow in 2003.
“It’s a very welcome announcement and we’re coming back into a market that we haven’t been into for many years,” Manitoba Beef Producers general manager Melinda German said.
Prior to the BSE discovery, Korea was the fourth largest export market for Canadian beef. Late in 2011, after years of zero exports to the East Asian country of about 50 million people the Korean government reopened its border to Canadian beef.
Estimates from the Canadian Agricultural Trade Policy Network tagged beef exports at 17,300 tonnes, which was worth $60 million to the industry before the ban.
South Korea was the last Asian market to lift restrictions, allowing the country to accept Canadian cattle under 30 months.
Under the new agreement, Korea will eliminate the 40 per cent tariff on fresh and frozen beef in 15 equal annual steps. Another 18 per cent tariff on offals will be fully eliminated in 11 years.
“In a perfect world we would have liked to see it opened right away with no tariffs at all,” German said. “Fifteen years is a long time, but we’re entering a very positive time in our market.”
While the impact is incremental, German said it will also take time to build the cattle herd in Manitoba. The deal, coupled with the European Union free trade agreement, should help a beef cattle inventory that dropped 2.7 per cent, or 30,000 head over a one-year period ending at the start of 2014. Both agreements have yet to be ratified.
“There is a lot of optimism in the industry right now and it’s been a long, hard haul since 2003 when BSE hit and there is a lot of recovery to do yet in the industry,” German said.
The deal is also crucial for the pork industry, which saw sales of Canadian pork in Korea plunge to $76 million last year from $233 million in 2011.
Producers were set to lose more of that market share as free trade agreements between Korea and other pork exporters including the United States, Chile and European countries are fully implemented, meaning lower-tariff access for Canadian competitors.
Gary Stordy, public relations manager for the Canadian Pork Council, said Korea applies a 22 to 25 per cent tariff on all pork entering the country, with the rate fluctuating based on the cut of the meat.
“Our competitors that have an FTA with Korea have seen their tariff rates start to drop,” he said. “Our industry will be using the announcement of the final agreement to rebuild relationships and build our market that was lost due to a lack of FTA. We hope to be competitive in the market in approximately four to five years when a majority of the tariffs will be eliminated.”
In total more than 98 per cent of Korean tariffs on Canadian goods will be eliminated once the deal is fully implemented. The average tariff on Canadian products is 13.3 per cent.
Nearly 98 per cent of Canadian tariffs on Korean goods will also be eliminated, with the average tariff on Korean products at 4.3 per cent.
The agreement will also eliminate a 6.1 per cent tariff over three years on vehicles imported from Korea from companies such as Hyundai and Kia.
David Lee, sales manager at Fowler Hyundai, said the majority of vehicles sold in Brandon are produced in the U.S., meaning the elimination of the tariff won’t affect them as much.
“It generally takes years to ratify a free-trade agreement so there won’t be any immediate impact with the tariffs on the actual cost of the vehicle not the suggested retail price,” he said.
Lee said the elimination of the tariff should help curb costs, which should help prices remain stable.
Diane Craig, president of the Ford Motor Company of Canada, blasted the deal.
“We believe that South Korea will remain one of the most closed automotive markets in the world under the deal negotiated by the Canadian government,” Craig said in a press release.
Last year, Canada imported 124,000 vehicles from South Korea, while exporting approximately 2,000.
“Over the last two years, both the United States and European Union free trade agreements with South Korea have failed to reverse this one-sided automotive trade flow because the South Korean government continues its long history of maintaining a closed market through non-tariff trade barriers and actively intervening in its currency to unfairly subsidize its exports and protect its home market,” she said.
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