Korean trade agreement only hits the reset button

Government PR spin surrounding the Canada/South Korea free trade agreement seems to imply that agriculture exports

Government PR spin surrounding the Canada/South Korea free trade agreement seems to imply that agriculture exports from Canada to South Korea are going to skyrocket by the millions of dollars.

News releases trot out data touting all the potential sales now that tariff barriers are being reduced or eliminated. But like most issues that have political agendas and vested interests there is more to the story, and more so with agriculture which is the most politicized industry in world trade. Every free trade agreement seems to agonize over agriculture sensitivities.

The reality is that every country that favours free trade also protects some sector of its domestic agricultural production from foreign imports and competition.

Although that may seem hypocritical to free market purists, agriculture and food are fraught with domestic political aspects, economic realities and cultural/historical considerations. Most of those factors trump free trade principles and are frustratingly impossible to resolve. The underlying issue with agriculture is food security, and that’s hard to negotiate away.

The most political is clearly beef products. In the recent Canada/European Union (EU) free trade understanding, the Europeans maintained their ban on hormone-added beef and merely increased its beef import quotas, that’s not free trade. They agreed to consider simplifying their complex beef import permit process which acted as a non-tariff barrier to beef imports from North America.

In exchange for that paltry trade crumb, Canada will allow an increase in quota for more high-end EU cheese imports. There is potential for more beef exports to the EU as access becomes easier, but that opportunity won’t be restricted to just Canadian beef.

For Canadian beef exports, the new agreement basically offers what was already contained in the USA/South Korea Free Trade Agreement.

That would be a 10 year tariff reduction schedule, the only difference being the Americans are two years ahead of Canada. That means Canadian beef exports will be at a tariff disadvantage to American beef until the schedule is completed.

Only a devalued Canadian loonie can level that situation. In the end, all the deal will do is restore the share Canada had of the Korean beef trade it had before the American/Korean free trade agreement. Any increases will be incremental and due more to hard fought competition by Canadian exporters.

Another misleading aspect of free trade agreements is that they open up vast new markets for Canadian agriculture exports.

That would be true if those vast new markets were not already being served by other suppliers that are competitors to Canadian agriculture products. What both recent agreements actually do is allow Canadian agriculture and food exporters the privilege of competing for markets against other foreign marketers on a more or less level playing field. That provides for more potential exports, but does not guarantee the hundreds of millions in increased sales as government Ministers like to tout.

South Korea already had free trade agreements with the USA, Australia and the EU.

One can expect that all of those agreements will basically treat every country equally — that being allowing them all to compete fairly with each other to supply the South Korean market with food products.

The much promoted Canada/EU understanding is far behind the recent Korean agreement; it’s yet to be ratified by EU member countries and faces further excruciating negotiations over the details. In the end no one expects the Canadian agreement to be any different from the pending USA/EU trade agreement when it comes to more agricultural exports to the EU.

You can also expect that traditional food suppliers to the EU like Australia, New Zealand, Brazil and Argentina will all be demanding their own free trade agreements with the EU to protect their traditional market shares.

What may happen in the long run is that cheaper beef imports will increase the market for all exporters to Korea including Canada.

Free trade agreements are a positive development in world trade as they strive to level the field for exporting countries. But that doesn’t always apply to the agriculture and food trade where domestic considerations can overrule common sense and science.

It hampers both imports and exports and it usually affects the price consumers pay for food. Canada plays that game in protecting our dairy and poultry industries by controlling the supply and prices. Trade liberalization is a slow process for agriculture and food, the unknown is whether an increasing world population with more money to spend will expedite that process through more demand for food products.

— Ahead of the Heard