Korean trade deal drawing fire from auto sector

Prime Minister Stephen Harper’s announcement of a free trade agreement between Canada and South Korea is drawing fire from segments of the automotive sector.

The deal is intended to open up new markets for business, and allow consumers to purchase cheaper products from overseas, but both Ford Motor Co. of Canada and Unifor – Canada’s largest union in the private sector – have come out against it.

In a statement released by Ford, the automaker said it “cannot support” the agreement and fears the deal won’t reverse “one-sided automotive trade flow.” Ford said it is committed to free trade and “supports well-negotiated agreements that open new markets for vehicles produced in Canada,” but feels the Canada-South Korea deal fails to open the Asian nation’s market long dominated by home-grown firms Hyundai Motor Co. and Kia Motors Corp. “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,” Ford’s statement reads. “Ford has proven that it can compete and win in the global marketplace when there is a level playing field…but no Canadian manufacturer can compete with a market controlled by non-tariff barriers and currency manipulation. The trade agreement negotiated by the Canadian government with South Korea fails to address these issues.”

A statement by Unifor echoed these concerns. “We cannot stand by a deal that secures a one-way flow of  Korean auto imports into the Canadian market, undermining the jobs and industry on which so many Canadians depend, while precious little is done to strengthen our imports to Korea,”  said Unifor National President Jerry Dias. Canada sold $3.7 billion worth of goods to Korea in 2012, but imported $6.4 billion. Unifor research reveals that 33,000 manufacturing jobs could be lost in a trade deal with Korea. “We expected our political leadership to stand up for the rights, jobs and economic security of Canadians – and they have failed to do that,” Dias said.

At present, Canada has a 6.1% tariff on car imports, but there is concern that if it is removed, the market would be flooded with Korean-made brands such as Hyundai and Kia. The federal government maintains the tariff elimination will have a limited impact on Canadian production because it says 85% of autos manufactured in Canada are for export. While there will be a three-year phased-in removal of Canadian auto tariffs on Korean vehicles and an immediate removal of Korean tariffs on Canadian exports, negotiators were unable to win similar protections to the ones the U.S. negotiated in its free trade agreement with South Korea.

By contrast, the U.S. deal with South Korea included protections against import surges into the U.S. market and a ground-breaking “snap-back” provision which enables the U.S. government to return tariffs to pre-agreement levels if Korean non-tariff barriers limit U.S. exports. Even with these provisions, the U.S. has suffered a worsening auto trade deficit.