Korea Dismisses McGuinty's Threat

Korea Dismisses McGuinty's Threat
(Embassy)

A Korean diplomat isn't worried about Ontario's tariff threat on Korean auto imports, which would violate WTO rules – unless it's done in a cunning way

A South Korean envoy has dismissed Ontario Premier Dalton McGuinty's threat to impose surcharges on South Korean automobile imports as "political remarks," while trade experts say there are other ways the province can throw up barriers to trade that wouldn't necessarily violate international trade rules.

Mr. McGuinty said last week he is willing to "explore all options" to protect Ontario's auto industry from the effects of a proposed free trade agreement with South Korea.

At the root of Mr. McGuinty's discontent is an epic trade imbalance in autos. In 2006, South Korea exported 114,000 vehicles to Canada, while Canada exported a fewer than 100 to the Asian nation.

Soon-taik Hwang, an official at the South Korean embassy in Ottawa, said this trade imbalance is not because of willfully-imposed barriers to trade. "The fact is that there are no barriers that stop Koreans from purchasing foreign made cars that offer good quality and performance and value," he said last week.

Mr. Hwang said he doesn't think Mr. McGuinty will impose any surcharges, and that the premier's comments were "political remarks." If anything, he added, tariffs should be imposed by the federal government, not provincial ones.

There is widespread concern amongst automakers and industry experts that a free trade pact with South Korea would put the already lagging North American producers at a further disadvantage by lowering tariffs without ensuring South Korean non-tariff barriers are removed. They also say tens of thousands of high-value jobs will be lost.

South Korea has argued that such barriers do not exist and, rather, that Koreans do not buy North American-made cars because they are not designed for that market. The Canadian government has called on the industry to identify the non-tariff barriers that concern them, while saying only a few dozen jobs will be lost.

Auto industry experts agreed that Mr. McGuinty's comments are likely intended, more than anything, to pressure the federal government to protect the auto sector.

Debra Steger, a University of Ottawa professor and expert on international trade law, said Mr. McGuinty's threat to impose tariffs on Korean autos would be "blatantly discriminatory." She said such a move would quickly be struck down in World Trade Organization arbitration.

The imposition of such tariffs would violate national treatment rules, Ms. Steger said, which require countries not to discriminate against imported products as compared to domestic products, as well as the Most Favoured Nation clause, which doesn't allow discrimination against imports from different countries.

"Those two principles," she said, "are the fundamental principles of the WTO, the [North American Free Trade Agreement] and all trade agreements."

A spokesman for International Trade Minister David Emerson told Embassy that discriminatory measures would be "counter-productive."

"The premier's comments are not going to help the economy or the hard working people in the manufacturing sector–including those who work in the automobile industry," spokesman Francois Jubinville said, though he acknowledged there is some work that needs to be done to increase market access in Korea. "Our government is doing what it takes to level the playing field for the auto industry and deliver a good deal for Canadians in these negotiations," he said.

Auto industry officials and trade union leaders say South Korea imposes special surcharges and restrictions on cars based on everything from engine size, safety standards, and even down to the size of the bracket that holds the license plate on the car. They also say significant barriers exist on the retail front as land use and zoning regulations make it hard to establish dealerships.

However, Ms. Steger said the province imposing non-tariff barriers of its own was one way that might help protect the Ontario market without prompting arbitration at the WTO. She said nowadays, clever governments prefer targeted product standards instead of blunt instruments like surcharges. Any number of standards could be applied, such as regulations governing emissions.

"You could do it in a more subtle way that doesn't appear at first glance to be targeted at Korea," she said. "Something a little more subtle, a little less black and white."

Jim Stanford, an economist with the Canadian Auto Workers Union, said he thinks Mr. McGuinty's comments show the premier is considering giving the Koreans a taste of their own medicine. "He's talking about the Ontario government using the same tools the Koreans have used," he said. "I think that point was missed last week."

"If the surcharge was related to regulatory or safety issues, it would be entirely within the provincial government's jurisdiction," he added.