The Harper Government’s free trade express has left the station and is picking up speed. Korea has lifted its ban on imports of Canadian beef derived from cattle 30 months old or less. This has removed a major stumbling block to finalizing the long delayed Canada-Korea Free Trade Agreement.
Prime Minister Harper is confident Korea’s decision will also help create a favourable climate to lead to a deeper bilateral trade relationship. South Korea is Canada’s seventh largest merchandise trading partner and its third largest in Asia. The Prime Minister has correctly identified Korea as a priority market for Canada.
And in a recent speech, Korean Ambassador to Canada, Nam Joo-hong, referred to the desire to expand two-way trade by $3 billion and to complete the stalled FTA negotiations.
International Trade Minister Ed Fast will meet his Korean counterpart on the fringes of the World Economic Forum in Davos next weekend. Revitalizing the FTA negotiations with Korea will be discussed. I have been impressed with Minister Fast and his energetic approach to his job. He had one-on-one meetings with two dozen of his counterparts during the WTO Ministerial week in Geneva.
What is next? The Trans Pacific Partnership (TPP) is on the formal agenda – I believe that a separate FTA with Japan would be a better and faster negotiating option for Canada – and easier to do but there is no reason that both could not be done.
Over the last few months the stage has been set for Canada to engage in a major bilateral and regional negotiating offensive. Minister Fast and Agriculture Minister Gerry Ritz and their key officials are up to the job. Canada’s determination to do deals is clear. But it will not be all smooth sailing. There are challenges, including overcoming opposition from the automotive industry and modifying rules of origin to be able to take full advantage of market opening.
Trade liberalization is always on Canada’s agenda. At times (e.g., Doha Round) blind faith has driven Canada’s participation. The current thrust is different. The Most Favoured Nation standard of the WTO has, in fact, become a least favoured standard. Canada needs a more focused and targeted plan.
The new focus is not all about pipeline approvals and a weak U.S. economy. The U.S. dollar is under attack at the WTO as a manipulated currency. Canadian farmers, ranchers and manufacturers who have seen margins shaved and eliminated might agree. Is the Obama plan to double exports in four years, like Buy American policies, a “beggar thy neighbour” policy?
There are sound arguments on both sides of these issues. While Canada will always be very important to the U.S. and the U.S. to Canada, the Harper Government is adopting trade strategies which assume that Canada cannot count on the U.S. when times are tough or it is politically inconvenient for the Administration.
Exploratory discussions have led to negotiations in Europe, India, and Brazil/Mercosur, but nowhere is increased trade and economic integration more important than in vibrant and rapidly growing Asia. And freer trade with China must be part of Canada’s strategy.
Canada must be serious about completing its FTA with Korea and doing it soon. Canada-Korea two-way merchandise trade was valued at $9.8 billion in 2010. Canadian merchandise exports to South Korea were $3.7 billion, while Canadian merchandise imports were $6.1 billion. Korea will be an important link in value chains in Asia. Canada needs to grow this trade, not watch what we have wither on the vine, lost to U.S. and E.U. competitors who already enjoy preferential duty free access.
Ministers must address continuing opposition to free trade with Korea from the automotive industry. Opposition to free trade with Korea does not differ much whether it comes from U.S. or Japanese owned competitors.
The Detroit Three never wanted an FTA with Korea. They would object even if Canada could negotiate the same terms as President Obama did for U.S. automotive producers. The automotive industry is important to Canada. All Canadian and Ontario taxpayers have shared with them in their time of need. But their opposition appears excessive and unfounded.
I am not going to repeat comments in earlier columns about the opposition to free trade with Korea by the Detroit Three and their union. If they have problems with competition from Korea, let the negotiators try to resolve them through negotiation. Frankly, it is insulting to suggest our very professional trade negotiators are incapable or should not even be allowed to try.
I expect that many Canadian exporters in the automotive, general manufacturing and food processing sectors will have serious problems meeting origin rules in the TPP and CETA. Some type of smaller economy friendly cumulation of originating content or greater reliance on substantial transformation may be the answer. This should – indeed must – be Canada’s priority objective.
The Detroit Three are not alone in their opposition. Honda and Toyota subsidiaries in Canada continue to oppose removing the 6.1% tariff on imports of light vehicles from Korea. This is rather perplexing given that the Japanese companies, which also opposed free trade between the USA and Korea (KORUS), will now be exporting to Korea from their U.S. plants. Toyota has announced that its U.S., Canadian and Mexican plants will be exporting outside North America.
The lobby for the Japanese automotive sector in Canada is Japan Automotive Manufacturers’ Association, Canada (JAMA). JAMA’s concerns are not limited to the impact of duty free imports from Korea on Canadian-built vehicles. This should be their only valid concern. JAMA does have valid concerns, but would outsourcing of exports from Japan to North America because of the strong yen not mitigate these concerns?
Imports of finished vehicles by the Japanese transplants has an interesting history. Toyota and Honda were attracted to Canada with generous government incentives which included the ability to import finished automobiles free of duty from anywhere in the world.
These remission programs were designed to put these “transplants” on more or less an equal footing with companies qualifying for and operating under the Canada-United States Automotive Products Agreement (Auto Pact).
The United States in the Canada-United States Free Trade Agreement (CUSFTA) negotiated an end to performance-based remissions. Existing remission orders were to be phased out by January 1, 1998. This impacted Toyota and Honda quite directly as well as a number of European manufacturers and Hyundai (which was just launching its short lived plant in Bromont, Quebec).
In the National Post (June 7, 2000), Neville Nankivell explained the discriminatory situation which was upsetting non-Auto Pact producers:
“General Motors can bring in Saabs from Sweden duty-free, Ford Canada can do the same with Jaguars from Britain and DaimlerChrysler with Mercedes-Benz vehicles from Germany. CAMI, a joint venture between Suzuki and GM, and Volvo Canada, now owned by Ford, also have duty-free import privileges. Yet other foreign-owned auto manufacturers with Canadian subsidiaries must pay the 6.1% duty on vehicles they import from overseas because they aren’t in the club. These include Toyota, Honda, Nissan, Mazda, BMW, Volkswagen and Hyundai.”
JAMA had a commercial interest – its members were adversely affected by discrimination. The European Union and Japan initiated WTO challenges against “Canada – Certain Measures Affecting the Automotive Industry” – or more simply put, the Auto Pact.
Canada lost the WTO dispute and the end result was that all imports by the Detroit Three into Canada not meeting NAFTA origin requirements were subject to the 6.1% MFN duty.
Why does, or did, JAMA oppose duty free entry for Korean autos? This seems clear from their submissions to government. Prominent were concerns about the competitive disadvantage that a 6.1% reduction in landed costs for Korean automobiles would have for imports of small vehicles from Japan
According to JAMA, DFAIT and University of Toronto studies indicating that a Canada-Korea FTA would have a minimal potential impact on the auto industry did not take account of how duty elimination would target their members, particularly those who imported competing products from Japan.
Sourcing changes in free trade agreements is normal – a natural result of the change in competitiveness among supplying countries resulting from tariff preferences. This is not a valid reason for opting out of free trade agreements. Canada should not base its negotiating options on demands to protect third country exports to Canada.
The U.S. negotiated a free trade agreement with Canada in 1988. The U.S. has re-sold duty free access many times, as has Canada. We have both sold the same fish several times. Neither has done anything to preserve or bind preferences for each other.
Korea has not had an easy time building up its position in Canada. JAMA discussed the impact of removal of the GPT on imports of Hyundai vehicles in 1987. The GPT safeguard was not a self-policing mechanism. It was responsive to complaints from Canadian industry.
Also in 1987, the Big Three filed an anti-dumping complaint against Hyundai. While the Canadian Import Tribunal found that dumping by Hyundai did not cause or threaten material injury to production of like goods in Canada, the propaganda, which precedes an investigation and the process itself, certainly had a chilling impact on imports and on Hyundai’s dealership network.
Even with the 6.1% tariff in place, Hyundai and Kia sold nearly 200,000 units in Canada in 2011. We do not know how many of these were Korea-direct and how many came from Hyundai and Kia plants in Georgia and Alabama.
Foreign investors with production facilities in Canada should not be ignored in setting negotiating goals. This would be a foolish game for Canada, which needs a steady flow of direct foreign investors.
Toyota Canada has made important investments in Canada. Ontario and Ottawa no doubt helped because the financial support offered by U.S. states cannot be ignored. Toyota should not be demonized for taking account of subsidy availability in deciding where to invest. Toyota was responsible for doing its own due diligence. Were assurances given that Canada would not remove the tariff on Korean automobiles as a condition for this investment? Not likely.
It is not in Canada’s interest, nor is it Canada’s responsibility to protect the position of imports from third countries in the Canadian market.
Canada should negotiate as vigorously as the U.S. did to safeguard important jobs in its automotive industry, no matter who owns the production facilities.
Korea is only the initial target for the free trade Luddites in the auto industry. The Detroit Three will have similar concerns about free trade in autos with Japan in the TPP or in any bilateral agreement. JAMA will welcome removal of the 6.1% albatross from its Japanese plants. Rules of origin in the Comprehensive Economic and Trade Agreement with Europe (CETA) currently will not permit Canadian exporters to use North American content to satisfy minimum qualifying content requirements.
If the EU maintains its position that the U.S. should not get a free ride from CETA, objections from the auto industry will intensify and the viability of CETA, indeed its birth, could be jeopardized. Is the auto industry wrong in its resistance? Perhaps it is in the traditional world of preferential trade agreements (PTAs). Realistically their concerns are about an imbalance, which disadvantages smaller economies. Canada must try to fix this imbalance, sooner rather than later.
Negotiations with Korea have been comatose for nearly four years. The beef ban has now been lifted and Canadian Cattlemen are urging an early return to the negotiating table. This important problem has been resolved through Government ingenuity and persistence on the part of the Cattlemen.
Korea is too important to Canada’s economic and overall Asian trade liberalization interests. It is high time to get back to the table and to negotiate terms similar to those in the KORUS FTA for Canadian automotive producers and to close the remaining issues which are so important to Canadian farmers, ranchers and others who have worked hard to build exports to Korea.
Original Article
Source:
Author:
Prime Minister Harper is confident Korea’s decision will also help create a favourable climate to lead to a deeper bilateral trade relationship. South Korea is Canada’s seventh largest merchandise trading partner and its third largest in Asia. The Prime Minister has correctly identified Korea as a priority market for Canada.
And in a recent speech, Korean Ambassador to Canada, Nam Joo-hong, referred to the desire to expand two-way trade by $3 billion and to complete the stalled FTA negotiations.
International Trade Minister Ed Fast will meet his Korean counterpart on the fringes of the World Economic Forum in Davos next weekend. Revitalizing the FTA negotiations with Korea will be discussed. I have been impressed with Minister Fast and his energetic approach to his job. He had one-on-one meetings with two dozen of his counterparts during the WTO Ministerial week in Geneva.
What is next? The Trans Pacific Partnership (TPP) is on the formal agenda – I believe that a separate FTA with Japan would be a better and faster negotiating option for Canada – and easier to do but there is no reason that both could not be done.
Over the last few months the stage has been set for Canada to engage in a major bilateral and regional negotiating offensive. Minister Fast and Agriculture Minister Gerry Ritz and their key officials are up to the job. Canada’s determination to do deals is clear. But it will not be all smooth sailing. There are challenges, including overcoming opposition from the automotive industry and modifying rules of origin to be able to take full advantage of market opening.
Trade liberalization is always on Canada’s agenda. At times (e.g., Doha Round) blind faith has driven Canada’s participation. The current thrust is different. The Most Favoured Nation standard of the WTO has, in fact, become a least favoured standard. Canada needs a more focused and targeted plan.
The new focus is not all about pipeline approvals and a weak U.S. economy. The U.S. dollar is under attack at the WTO as a manipulated currency. Canadian farmers, ranchers and manufacturers who have seen margins shaved and eliminated might agree. Is the Obama plan to double exports in four years, like Buy American policies, a “beggar thy neighbour” policy?
There are sound arguments on both sides of these issues. While Canada will always be very important to the U.S. and the U.S. to Canada, the Harper Government is adopting trade strategies which assume that Canada cannot count on the U.S. when times are tough or it is politically inconvenient for the Administration.
Exploratory discussions have led to negotiations in Europe, India, and Brazil/Mercosur, but nowhere is increased trade and economic integration more important than in vibrant and rapidly growing Asia. And freer trade with China must be part of Canada’s strategy.
Canada must be serious about completing its FTA with Korea and doing it soon. Canada-Korea two-way merchandise trade was valued at $9.8 billion in 2010. Canadian merchandise exports to South Korea were $3.7 billion, while Canadian merchandise imports were $6.1 billion. Korea will be an important link in value chains in Asia. Canada needs to grow this trade, not watch what we have wither on the vine, lost to U.S. and E.U. competitors who already enjoy preferential duty free access.
Ministers must address continuing opposition to free trade with Korea from the automotive industry. Opposition to free trade with Korea does not differ much whether it comes from U.S. or Japanese owned competitors.
The Detroit Three never wanted an FTA with Korea. They would object even if Canada could negotiate the same terms as President Obama did for U.S. automotive producers. The automotive industry is important to Canada. All Canadian and Ontario taxpayers have shared with them in their time of need. But their opposition appears excessive and unfounded.
I am not going to repeat comments in earlier columns about the opposition to free trade with Korea by the Detroit Three and their union. If they have problems with competition from Korea, let the negotiators try to resolve them through negotiation. Frankly, it is insulting to suggest our very professional trade negotiators are incapable or should not even be allowed to try.
I expect that many Canadian exporters in the automotive, general manufacturing and food processing sectors will have serious problems meeting origin rules in the TPP and CETA. Some type of smaller economy friendly cumulation of originating content or greater reliance on substantial transformation may be the answer. This should – indeed must – be Canada’s priority objective.
The Detroit Three are not alone in their opposition. Honda and Toyota subsidiaries in Canada continue to oppose removing the 6.1% tariff on imports of light vehicles from Korea. This is rather perplexing given that the Japanese companies, which also opposed free trade between the USA and Korea (KORUS), will now be exporting to Korea from their U.S. plants. Toyota has announced that its U.S., Canadian and Mexican plants will be exporting outside North America.
The lobby for the Japanese automotive sector in Canada is Japan Automotive Manufacturers’ Association, Canada (JAMA). JAMA’s concerns are not limited to the impact of duty free imports from Korea on Canadian-built vehicles. This should be their only valid concern. JAMA does have valid concerns, but would outsourcing of exports from Japan to North America because of the strong yen not mitigate these concerns?
Imports of finished vehicles by the Japanese transplants has an interesting history. Toyota and Honda were attracted to Canada with generous government incentives which included the ability to import finished automobiles free of duty from anywhere in the world.
These remission programs were designed to put these “transplants” on more or less an equal footing with companies qualifying for and operating under the Canada-United States Automotive Products Agreement (Auto Pact).
The United States in the Canada-United States Free Trade Agreement (CUSFTA) negotiated an end to performance-based remissions. Existing remission orders were to be phased out by January 1, 1998. This impacted Toyota and Honda quite directly as well as a number of European manufacturers and Hyundai (which was just launching its short lived plant in Bromont, Quebec).
In the National Post (June 7, 2000), Neville Nankivell explained the discriminatory situation which was upsetting non-Auto Pact producers:
“General Motors can bring in Saabs from Sweden duty-free, Ford Canada can do the same with Jaguars from Britain and DaimlerChrysler with Mercedes-Benz vehicles from Germany. CAMI, a joint venture between Suzuki and GM, and Volvo Canada, now owned by Ford, also have duty-free import privileges. Yet other foreign-owned auto manufacturers with Canadian subsidiaries must pay the 6.1% duty on vehicles they import from overseas because they aren’t in the club. These include Toyota, Honda, Nissan, Mazda, BMW, Volkswagen and Hyundai.”
JAMA had a commercial interest – its members were adversely affected by discrimination. The European Union and Japan initiated WTO challenges against “Canada – Certain Measures Affecting the Automotive Industry” – or more simply put, the Auto Pact.
Canada lost the WTO dispute and the end result was that all imports by the Detroit Three into Canada not meeting NAFTA origin requirements were subject to the 6.1% MFN duty.
Why does, or did, JAMA oppose duty free entry for Korean autos? This seems clear from their submissions to government. Prominent were concerns about the competitive disadvantage that a 6.1% reduction in landed costs for Korean automobiles would have for imports of small vehicles from Japan
According to JAMA, DFAIT and University of Toronto studies indicating that a Canada-Korea FTA would have a minimal potential impact on the auto industry did not take account of how duty elimination would target their members, particularly those who imported competing products from Japan.
Sourcing changes in free trade agreements is normal – a natural result of the change in competitiveness among supplying countries resulting from tariff preferences. This is not a valid reason for opting out of free trade agreements. Canada should not base its negotiating options on demands to protect third country exports to Canada.
The U.S. negotiated a free trade agreement with Canada in 1988. The U.S. has re-sold duty free access many times, as has Canada. We have both sold the same fish several times. Neither has done anything to preserve or bind preferences for each other.
Korea has not had an easy time building up its position in Canada. JAMA discussed the impact of removal of the GPT on imports of Hyundai vehicles in 1987. The GPT safeguard was not a self-policing mechanism. It was responsive to complaints from Canadian industry.
Also in 1987, the Big Three filed an anti-dumping complaint against Hyundai. While the Canadian Import Tribunal found that dumping by Hyundai did not cause or threaten material injury to production of like goods in Canada, the propaganda, which precedes an investigation and the process itself, certainly had a chilling impact on imports and on Hyundai’s dealership network.
Even with the 6.1% tariff in place, Hyundai and Kia sold nearly 200,000 units in Canada in 2011. We do not know how many of these were Korea-direct and how many came from Hyundai and Kia plants in Georgia and Alabama.
Foreign investors with production facilities in Canada should not be ignored in setting negotiating goals. This would be a foolish game for Canada, which needs a steady flow of direct foreign investors.
Toyota Canada has made important investments in Canada. Ontario and Ottawa no doubt helped because the financial support offered by U.S. states cannot be ignored. Toyota should not be demonized for taking account of subsidy availability in deciding where to invest. Toyota was responsible for doing its own due diligence. Were assurances given that Canada would not remove the tariff on Korean automobiles as a condition for this investment? Not likely.
It is not in Canada’s interest, nor is it Canada’s responsibility to protect the position of imports from third countries in the Canadian market.
Canada should negotiate as vigorously as the U.S. did to safeguard important jobs in its automotive industry, no matter who owns the production facilities.
Korea is only the initial target for the free trade Luddites in the auto industry. The Detroit Three will have similar concerns about free trade in autos with Japan in the TPP or in any bilateral agreement. JAMA will welcome removal of the 6.1% albatross from its Japanese plants. Rules of origin in the Comprehensive Economic and Trade Agreement with Europe (CETA) currently will not permit Canadian exporters to use North American content to satisfy minimum qualifying content requirements.
If the EU maintains its position that the U.S. should not get a free ride from CETA, objections from the auto industry will intensify and the viability of CETA, indeed its birth, could be jeopardized. Is the auto industry wrong in its resistance? Perhaps it is in the traditional world of preferential trade agreements (PTAs). Realistically their concerns are about an imbalance, which disadvantages smaller economies. Canada must try to fix this imbalance, sooner rather than later.
Negotiations with Korea have been comatose for nearly four years. The beef ban has now been lifted and Canadian Cattlemen are urging an early return to the negotiating table. This important problem has been resolved through Government ingenuity and persistence on the part of the Cattlemen.
Korea is too important to Canada’s economic and overall Asian trade liberalization interests. It is high time to get back to the table and to negotiate terms similar to those in the KORUS FTA for Canadian automotive producers and to close the remaining issues which are so important to Canadian farmers, ranchers and others who have worked hard to build exports to Korea.
Original Article
Source:
Author:
No comments:
Post a Comment