Expanding Canada’s Competitiveness

On Tuesday March 11th, Canada and the South Korea announced a Free Trade Agreement (FTA). This deal will once again make Canada competitive in a lucrative market.

The U.S. and South Korea have had their own FTA since 2007. In 2012, tariffs were reduced for U.S. pork and beef, putting Canadian producers at a disadvantage. For example, the majority of U.S. pork exports enjoyed tariff free status as of 2014.

Not surprisingly, Canadian pork exports to South Korea have declined in this period. In 2013, pork exports totalled $69.5 million, compared to $206.8 million in 2011.

Under the new deal, tariffs on Canada’s beef exports will be reduced. While the U.S. beat us to the table, they’ll enjoy their competitive advantage for only several more years until the tariffs on all of our respective exports are reduced at the same pace. Thanks to the deal, the erosion of our competitiveness we’ve seen in the last two years will stop. Eventually, the trade taxes will head towards zero, and the playing field will once again be leveled.

Grain and oilseed producers stand to benefit as well. For example the base tariff rate on canola is 10% and 3% for wheat. Again, the U.S. now faces no tariffs for these products. Canadian producers are productive and efficient; however it’s doubtful that we are 10% better than our southern neighbours. This deal restores our competitiveness as Canadian producers will now get duty free access, the same as the United States.

The good news is that the trade deal will allow Canadian producers to compete in a market of 50 million people, in a country that has relatively little agricultural land.

Completing a trade deal with South Korea is beneficial to Canadian producers. The fall in our meat exports show that these trade deals are not simply some theoretical exercise. Market access matters. Our competitiveness depends on it.

If you are looking for more details on tariff reductions facing your industry, look here.

- James Bryan, Agricultural Economics Analyst