Posted by on Dec 9, 2014

Introduction

On September 22, 2014, Prime Minister Stephen Harper and South Korean President Park Geun-hye signed the Canada-Korea Free Trade Agreement [“CKFTA” or “Agreement”].   For Korea, this was the latest in a series of FTAs concluded with major economies, including one with the European Union [“KOREU”], the United States [“KORUS”], and Australia [“KAFTA”]. For Canada, it marked the winding up of two big negotiations with major economies, the other being the Canada and European Union (EU) Comprehensive Economic and Trade Agreement [“CETA”].[1] The CKFTA is Canada’s first “full-fledged trade agreement with an Asian economy.”[2] For Korea, the Agreement signaled the continuation of an “aggressive program of FTAs with major global economies.”[3]

The Canada-Korea Free Trade Agreement [“CKFTA”] may prove to be one of Canada’s most important trade policy initiatives since the Canada-U.S. Free Trade Agreement and the North American Free Trade Agreement [“NAFTA”] were negotiated 25 and 20 years ago respectively [see – http://www.wl-tradelaw.com/woods-lafortune-discuss-25th-anniversary-of-free-trade/]. Being the world’s 15th-largest economy and the fourth-largest in Asia, Korea has easily become both an Asian-Pacific gateway and a hub for global traders.  South Korea is Canada’s 7th largest merchandise trading partner and Canada’s 3rd largest in Asia, after China and Japan.[4] Canada-South Korea two-way merchandise trade reached nearly $10.1 billion in 2012; Canadian merchandise exports to South Korea were $3.7 billion while Canadian merchandise imports were $6.3 billion.[5]

About the Agreement

This article is the first of a three part review of the CKFTA.  Part I of this series offers a general overview of the CKFTA and its provisions, while Parts II and III will cover investment and dispute settlement provisions respectively. The CKFTA covers many aspects of Canada-South Korean trade, including trade in goods and services, investment, government procurement, non-tariff barriers, environment and labour cooperation. Certain tariffs will be eliminated upon the coming into force of the Agreement and the remaining tariffs will be phased out within a number of years.

Non-Agricultural goods

The CKFTA will eliminate duties on all non-agricultural goods including industrial goods, fish and seafood products, as well as forestry and value-added wood products. All South Korean tariffs on fish and seafood products will also be eliminated. Products benefiting from immediate tariff elimination include lobster (frozen) and Pacific and Atlantic salmon (fresh, chilled and smoked), which currently endure duties of up to 20 percent. Nearly 70 percent of fish and seafood tariff lines will be duty-free within five years of the Agreement’s entry into force and all remaining duties will be eliminated within 12 years.[6]

In the automotive sector, exports of Canadian vehicles and automotive parts will be duty-free immediately upon the entry into force of the CKFTA, compared to a longer phase-out of five years under KORUS and three to five years under the EU-Korea FTA.[7] Upon the Agreement’s entry into force, all existing South Korean tariffs will be eliminated, including all light vehicles and all automotive parts.

Agricultural products

The Agreement covers a number of products such as grains and special crops, oilseeds and oilseed products, meat and animal products, animal feeds, processed products and alcoholic beverages. For example, duties of up to 25 percent for fresh and frozen pork will be entirely eliminated in 5 to 13 years; and duties that range from 40 to 72 percent for fresh and frozen beef cuts, and some processed beef, will be eliminated in 15 years.[8]

Services

The CKFTA provides new market access of particular interest to Canadian business: professional services, foreign legal consultancy services, commercial education and training, research and development, environmental services, business services and services incidental to manufacturing, mining and wholesale trade. The services chapter includes a most-favoured nation (“MFN”) clause, which ensures that any additional benefits granted by South Korea to its future free trade agreement partners will also be extended to Canada.[9]

Labour

Highlights of the labour chapter include provisions ensuring that national labour laws and policies in Canada and South Korea respect international labour standards, including the International Labour Organization’s 1998 Declaration on Fundamental Principles and Rights at Work. The CKFTA also includes a non-derogation clause preventing either Party from derogating from its labour laws in order to encourage trade or investment.

Investment

In 2013, Korea’s investment stock in Canada was $5.2 billion whereas Canada’s investment stock in Korea was $534 million.[10] The investment chapter provides protection against discriminatory treatment, protection from expropriation without prompt and adequate compensation, and access to independent international investor-state dispute settlement. A more detailed analysis of the investment chapter will be provided in PART II of this series.

Government Procurement

Canadian suppliers will have access to procurement by South Korean central government agencies for contracts valued above 100 million South Korean Won (100 thousand Canadian dollars). The same threshold applies for Korean access to Canadian federal government procurement. The CKFTA will extend the commitments made by Korea and Canada in the revised World Trade Organization Agreement on Government Procurement (WTO AGP). Sub-national (provincial, territorial and municipal) government procurement is not currently covered by the CKFTA, however sub-national commitments that are made by Canada and Korea in the WTO AGP will be incorporated into the CKFTA.[11]

Intellectual Property

The CKFTA reiterates existing aspects of Canada’s regime in regards to patents, trademarks and copyright. It does not incorporate new commitments in the area of pharmaceutical patents.

Conclusion

Canada has opened the door into the Asian market and, upon ratification of the CKFTA, investors from both Canada and Korea stand to benefit from reduced tariffs and increased market access in a number of sectors, including services and government procurement. Part II and III of our series on the CKFTA will provide an in-depth analysis of the investment and dispute settlement provisions contained in the Agreement.

 

Authors:

  •  Marie-Michèle Pellerin-Auprix  – J.D., University of Ottawa (French Common Law Program), New-Rowel Scholarship for Community Engagement; B.Soc.Sc. (Honours) International Development and Globalization, University of Ottawa.

 

Endnotes:

[1] Canada has 12 FTAs in force (not including the one FTA signed ad one FTA concluded). Korea has 8 FTAs in force and two FTAs concluded.

[2] Dan Ciuriak and Jingliang Xiao, Canada-Korea Free Trade Agreement: A First Look at the Numbers, 2014, at 3.

[3] Ibid.

[4] Canada Korea relations, online:  Canada embassy to Korea <http://www.canadainternational.gc.ca/korea-coree/bilateral_relations_bilaterales/index.aspx?lang=eng>

[5] Ibid.

[6]Trade Negotiations and Agreements, online: Foreign Affairs and International Trade Canada <http://international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/korea-coree/overview-apercu.aspx?lang=eng#1>

[7] Ibid.

[8] Trade Negotiations and Agreements, online: Foreign Affairs and International Trade Canada <http://international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/korea-coree/overview-apercu.aspx?lang=eng#1>

[9] Ibid.

[10] http://www.international.gc.ca/economist-economiste/assets/pdfs/Data/investments-investissements/FDI_by_Country/FDIC_stocks_by_Country-ENG.pdf

[11] Ibid.