Free-Trade Deal Between Canada and South Korea Raises Red Flags About TPP's Blog on Customs Brokerage and News Updates

Free-Trade Deal Between Canada and South Korea Raises Red Flags About TPP

Figures related to Canada’s 2015 trade numbers were published in early February by Statistics Canada: imports are up while exports are going through a gloomier period. As non-energy exports are showing a promising growth, the numbers don’t cancel out the reduced energy exports in addition to the loss of 0.6 per cent in total merchandise exports. But on the other side, imports have gone up 4.5 per cent, creating what experts are now calling the “biggest trade deficit in Canadian history”.

In January 2015 the Canada-Korea Free Trade Agreement came into force. It was presented by the government of the time as a landmark agreement with the potential of boosting Canada’s economy by $1.7 billion in addition to increasing Canadian exports to South Korea by 32 per cent. That was then, this is now: Canadian merchandise exports to its new trade partner fell 3.9 per cent in 2015. In comparison, that’s seven times worse than the contraction in our exports to the rest of the world. The new trade agreement quickly lost its brand new car smell and it turns out it might just be a lemon.

Sell a little, buy a lot

Canada may not have exported quite as much as it would have liked, but imports did very well. Against the odds and while the country was wrestling with a recession for much of 2015, imports from South Korea actually increased by 8 per cent, that’s twice as fast as importations from the rest of the world.

The trade deficit, accentuated by the declining exports and thriving imports of the Canada-Korea agreement, hit a record $4-billion according to customs data. As a trade partner, South Korea accounts for 30 per cent of Canada’s global trade deficit and so, that means that Canadians are importing $2 worth of merchandise for every dollar sold there. That doesn’t balance out too well.

Scratch my back and I’ll scratch yours (or not)

Like any other free trade agreement before it, the deal struck with Korea was suppose to be a mutually beneficial partnership, so what happened? Well it doesn’t help that a few weeks into the deal, the South Korean government imposed a ban on Canadian beef following a BSE scare. Because beef and pork exports were expected to be big winners into the agreement, being left on the sidelines resulted in deceiving results for Canada. To add insult to injury, the newly minted partnership was useless in providing any recourse or paths to a quick resolution in light of the anti-beef policy which remained in place most of the year.

But it’s not all about the beef – which only actually accounts for less than 5 percent of Canadian exports to South Korea – the fact that Canada’s export market is also very focused on the sale of unprocessed minerals and resources, which depend greatly on falling market prices, doesn’t help Canada’s case. The tariffs imposed by Seoul on the minerals and resources are fairly high to start off in comparison to the larger and more beneficial tariffs barriers when it comes to the goods Canadians are importing such as electronics and cars. All in all, South Korea is at the sweet end of the deal.

When it comes to a balanced partnership, South Korea’s state-directed strategies to boost investments, productivity and exports in key sectors like technology may help to clarify the raison d’être of a negative impact for Canada. Efforts are made by Seoul to maximize exports while making imports more difficult in order to support its strategies.

New deal, same results

Canada South Korea Free Trade

With the unsatisfying results of the Canada-Korea Free Trade Agreement, Canadians should ponder about the much talked about and recently signed Trans-Pacific Partnership (TPP). Among the various partner nations of the TPP, several partners (including Japan, Malaysia and Vietnam) use export oriented strategies similar to those of the South Korean government. In addition, a large part of the purchases of those countries from Canada consist of unprocessed resources – just like South Korea. It’s easy to suppose that any free-trade agreement with those countries wouldn’t necessarily bring anything more than the current agreement with the Koreans.

Canada should certainly try to improve its Asia-Pacific trade performance and to do so it needs not to look very far: the measures taken by Asian countries might be the route to take. Investing in industrial planning, subsidized exports and putting in efforts to boost national content in supply chains are a few steps that could give Canada the edge it needs within the TPP instead of being chewed up by the “free markets”.