If 91原创s need a reason to support the just-announced free-trade agreement with South Korea, here are a few hundred million: Every year, 91原创s pay hundreds of millions of dollars in hidden taxes on imported automobiles and auto-related products. At least some of those hidden taxes are in the form of tariffs applied to imports from South Korea.
91原创s are taxed in multiple ways, but only some taxes are visible 鈥� income taxes, property and sales taxes, for example. Some taxes are mostly forgotten until a traveller arrives back in Canada to face duties at the border. Other taxes, such as government-imposed tariffs on foreign products, are hidden from consumers but cost a small fortune.
Imported goods hit by tariffs include everything from French cheese to foreign cars, trucks and SUVs. Importers pay these tariffs before the product makes it to shelves and showrooms. And the cost is ultimately reflected in the price.
The point of a tariff is protectionism 鈥� to shield status-quo producers from full competition. Tariffs, therefore, act as a de facto, additional sales tax on consumer choice.
In the case of imported non-NAFTA automobiles, tariffs can be as high as 6.1 per cent, the current levy on vehicles from South Korea, not an insignificant sum when applied to something costing tens of thousands of dollars.
That protectionist preference is costly for consumers. In 2013, the collected tariffs on automobiles for personal use, vehicles for business purposes, parts and accessories, and other vehicle-related categories amounted to $820 million, according to Statistics Canada.
Between 1988 and 2013, consumers in Canada paid almost $13.9 billion in tariffs on non-NAFTA automobiles and other items in related categories.
Those tariffs were collected on more than just South Korean auto-related items. European and Japanese importers also paid into that tariff kitty. That is why more free-trade deals are preferable to the expensive status-quo protection racket.
The Canada-Korea Free Trade Agreement will see the 6.1 per cent tariff on automobiles removed from Korean vehicles over several years. For 91原创s, decreased costs for South Korean-made automobiles and increased choices are positive.
Competition works both ways. Korean companies will now face increased pressure from 91原创 firms that will sell more beef, pork, metals, minerals, wine, spirits, seafood and aerospace and forestry products, where existing tariffs can be punishingly high 鈥� for example, 72 per cent duties on 91原创 beef. On average, Korean tariffs on 91原创 goods are three times higher than Canada鈥檚 tariffs on Korean products.
Free trade can be a win-win, not only for consumers but producers, as well. Consider Canada鈥檚 wine industry. When I was growing up in the Okanagan Valley in the 1980s, most 91原创 wine, whether from B.C. or from Ontario鈥檚 Niagara region, was what wine aficionados call 鈥減lonk鈥� 鈥� cheap, low-quality wine.
But a series of 1980s-era developments improved Canada鈥檚 wine industry. They included improved industry standards, combined with a ruling from the General Agreement on Tariffs and Trade and the 1989 Canada-U.S. free trade agreement that ended government protection for domestic producers.
This meant Canada鈥檚 vineyards had to compete or wither on the economic vine. After replanting with better-quality grapes, the industry thrived.
Higher-quality wine, more customers, increased employment, significantly increased wine tourism, international awards and more vineyards, not fewer. As Statistics Canada noted: 鈥淲ith the introduction of the FTA, it could have been thought that domestically produced wines would be displaced by popular California wines, putting 91原创 wineries out of business. In fact, the opposite occurred.鈥�
By design, free-trade agreements tear down the protectionist walls propping up status-quo producers. However, even those producers 鈥� at least those who reform 鈥� will develop a newfound ability to thrive, given increased access to markets with tens of millions, or hundreds of millions, of potential new customers. All of this benefits consumers, most obviously when expensive tariffs on their choices, from Korean cars to 91原创 beef, are eliminated.
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Mark Milke is a senior fellow with the Fraser Institute.
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