Canada’s free trade deal with South Korea marks the end of an era.
It’s hard to pick the start date for that era. Maybe 1965, when a pact with the U.S. guaranteed significant auto production in southern Ontario.
Or maybe 1986, when the federal government used a judicious combination of carrots and sticks to entice Japanese auto assembly plants into Canada.
But whatever start date is chosen, the era when governments used their clout to encourage secondary manufacturing in Canada is all but over.
Instead, Ottawa is retreating to the economy of a much earlier time, when Canada concentrated on selling raw materials abroad and then imported whatever manufactured goods were needed.
Some Canadian high-tech firms, including those making aerospace equipment, hope to profit from the deal announced Monday in Seoul. And perhaps some will.
But the real Canadian winners will be beef and pork farmers, who will be able to sell their wares in South Korea duty-free. Meat products now account for roughly 4 per cent of Canadian exports to South Korea.
The biggest Canadian export to South Korea is coal. That’s unlikely to change.
Meanwhile, the losers will be auto workers displaced by cheaper, duty-free Korean cars. A study commissioned by Ottawa estimates that up to 1,150 Ontario jobs will be lost as a result of both this deal and an earlier one signed between Washington and Seoul. (That 2012 pact is expected to result in Korean imports displacing some autos manufactured in Canada for sale south of the border.)
The focus away from auto manufacturing can be dated to the early 1990s, when Canada embraced continental free trade. Up to then, foreign auto companies that wanted to escape Canadian tariffs had to build manufacturing plants in Canada — as Japanese firms Toyota and Honda did.
But with the North American Free Trade Agreement, a car company that wanted to avoid Canadian tariffs could do so by setting up shop in the U.S. or Mexico. South Korean manufacturers Kia and Hyundai eventually did just that, building in Georgia and Alabama.
Exactly why Prime Minister Stephen Harper has been so intent on inking the South Korea deal is unclear. The government argues that Canada fell behind after Washington and Seoul signed their own free trade deal two years ago. Officials note that after that pact was signed, Canadian exports to South Korea fell by $300 million.
What they don’t mention is that American exports to South Korea also fell after that 2012 deal between Seoul and Washington — by $1 billion.
In any case, as a result of its haste, Canada has been unable to secure some of the safeguards against unfair trade practices that the U.S. did.
While Unifor, the union representing auto workers, has been vocal in its opposition to the Korea treaty, companies manufacturing cars in Canada are split.
Ford has fought the deal bitterly. But Honda and Toyota say they welcome the pact and hope that Canada will eventually strike a similar arrangement with their home country of Japan. Chrysler initially opposed the deal but backed down. General Motors has kept mum.
In part, as the Automotive News reported last year, this is because the car companies themselves yearn for a borderless world that would let them set up shop wherever costs are cheapest.
But in part, companies are responding to the fact that many governments are no longer interested in actively promoting manufacturing.
Australia’s right-of-centre government has said it will allow the last remnants of that country’s domestic auto industry to die by 2017. Instead, Prime Minister Tony Abbott hopes to encourage more raw material exports to places like China.
Canada hasn’t quite got to that point. Harper’s government did put up the lion’s share of a $13.7 billion bailout in 2008-09 for Chrysler and General Motors (not all of which has been repaid). Ottawa was willing to help subsidize Chrysler again this year.
But the writing is on the wall. Governments aren’t as interested in the auto sector as they once were. That’s the message of this trade pact.