Canada-Korea Trade Deal

Canada-Korea Trade Deal

Canada Lumber Exports
The Canada-Korea Free Trade Agreement concluded in Seoul on Tuesday by Prime Minister Stephen Harper and South Korean President Park Geun-hye, has both countries pledging to eliminate duties on 98 per cent of all goods. More than nine years and 14 bargaining rounds in the making, the deal offers what Harper called an open door “to the lucrative Asia-Pacific market for Canadian businesses.” For Seoul, it is the latest in a free-trade network that includes the United States, the European Union and Australia that is positioning South Korea as a potent new trade hub in northern Asia.
Tariffs of 1 per cent to 10 per cent will be eliminated on lumber and pulp. In 2012, the sector contributed $20.2 billion to Canada’s GDP. The deal stands to lift Canada’s GDP by $1.7-billion, federal officials calculate.
Some watchers say this deal is simply a reaction, because after US and EU deals with South Korea, Canada’s trade with the country dropped by about a third, or US$1.5-billion. Exporters hope to regain that ground once the legal paperwork is drafted and presented to Parliament, which could happen in months.
Canada exported $503.8 million worth of wood and forestry products to Korea in 2012, according to a federal government press release Tuesday, representing 13.7 per cent of Canada’s total exports to that country. Canadian wood exports to Korea alone were worth $166.7 million in 2012, representing 33 per cent of Canada’s overall wood and forestry exports to Korea. In 2012, Korea ranked fourth as an export destination for Canadian wood products. Globally, Korea imported approximately $6.3 billion in wood and forestry products in 2012.
Fifty per cent of Canadian exports to South Korea are from BC, that country is BC’s fourth-largest trading partner behind the US, China, and Japan. Exports from BC to South Korea were worth an annual average of $2.17 billion from 2010 to 2012.
BC exported 29.6 thousand cubic metres of softwood lumber to Korea in 2011, according to BC Forestry Innovation Investment, 30.5 thousand cubic metres in 2012, and 23.8 thousand cubic metres in 2013. This compares to 13,604 thousand cubic metres exported to the US in 2013.
Korea Lumber Imports
Korea remains highly dependent on wood product imports as over 90 per cent of wood products consumed there are imported.
Overall, home construction in Korea remains at a lower level than in recent years, but starts of single-family homes (where wood-frame construction is most established) have increased every year since 2008. However, multi-family residential construction is an opportunity for exporters if stringent fire and sound insulation requirements can be met.
The Korean wood industry relies on imports from over 100 countries for more than 80 per cent of its consumption, according to a USDA Foreign Agricultural Service report prepared in 2012 for the US-Korea bilateral trade deal. Among these countries, about 85 per cent of the total value of all imports comes from only 10 countries. Over the past year the total value of Korean wood imports increased by 12 per cent to US$2,574 million. In 2011, US wood exports to Korea totalled US$206 million, slightly less than US$209 million in 2010, but still ranking fifth overall.
In recent years, China emerged as the biggest wood supplier to Korea, followed by New Zealand, Canada, and Malaysia. Wood imports from China in 2011 totalled US$564 million, which accounted for 23 per cent of total imports and an increase of 37 per cent compared to the previous year. In addition, imports from New Zealand totalled US$380 million; Canada, US$263 million; and Malaysia, US$258 million.

BC Lumber Exports to Korea
Korean lumber imports for 2011 increased by 32.5 per cent to US$437 million. The largest supplier for lumber in the Korean market is Canada followed by Chile, Russia, and China, while the US ranked the seventh. Chile accounted for 66.5 per cent of increase; New Zealand, 54 per cent; Canada, 30 per cent, and China 30 per cent.
A construction downturn in Korea has added to the risk of the nation missing the government’s 2.7 per cent growth forecast amid patchy demand for exports and near-record household debt, according to Bloomberg August 4, 2013.
“South Korea’s property market is sinking slowly, sapping the growth potential of the economy,” said Oh Suk Tae, a Seoul-based economist at SG Securities. “Given the large share of household wealth in real estate and the heavy reliance on mortgages, consumers will continue to scrimp on spending unless property prices make a sustained upswing.”
The weak housing market adds to challenges for Asia’s fourth-biggest economy.
The government has been discussing how to cut housing purchase taxes to “normalize” the property market, and will prepare steps by the end of August to be submitted to parliament, according to a joint statement by the finance, land and public administration ministries on July 22, 2013.
At the time, construction in South Korea was sputtering. Residential building permits fell 24.4 per cent in the first half of 2013 from a year earlier while housing starts dropped 19.2 per cent, according to land ministry data released July 28, 2013.
The KOSPI 200 Construction sub-index has lost 22 per cent this year, steeper than a 3.7 per cent slide in the Kospi Index.
More recently, however, shares of South Korean construction companies are skyrocketing on the back of simmering signs of housing market recovery, eased regulations, and a series of massive overseas orders, with the boom expected to continue for the time being, analysts said February 21 to Yonhap News.
The sector’s stock index measuring players’ market capitalization stood at 138.34 points at the time, compared with a yearly low of 121.36 on January 27.
Just a few months ago, their share prices hit near rock bottom as investors were turned away by their poor profits and cloudy earnings outlook.
For the past few years, the local construction segment was decimated as players struggled with high-risk property development projects, money-losing overseas projects, and unsold homes, which in turn severely hurt their profitability.
Analysts said the nation’s housing market is set to rebound from a deep trough as eased regulations, rapid adjustment of home prices, and low interest rates would increase leeway to purchase a home.
The nation’s construction ministry said it would move to ease regulations on rebuilding dated apartments, which analysts say is one of the key parts of measures under review by the government to boost domestic demand.
“Boosting housing prices is key to propping up domestic demand as some 70 per cent of households’ assets are real estate,” said Lee Jae-man, an analyst at Hana Daetoo Securities. “Also, housing prices are showing a modest recovery, which would help boost builder’s profitability down the road.”
Government data show sales of homes have more than doubled to 58,846 in January from a year earlier, indicating a recovery in the local property market. The January figure also marks a 37 per cent rise from the five-year average. The sharp increase was in part attributed to increased tax incentives.

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