Canada-Korea Free Trade Agreement (CKFTA)
How the Canada-Korea Free Trade Agreement Will Benefit Alberta
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Creating jobs and opportunities for Albertans
Alberta stands to benefit significantly from preferred access to the South Korean market. South Korea is already Alberta’s fifth-largest export destination, with exports from 2010 to 2012 worth an annual average of approximately $628.2 million.
Upon entry into force, the Canada-Korea Free Trade Agreement will eliminate tariffs on almost all of Alberta’s key exports and provide access to new opportunities in the South Korean market. Exporters in these sectors will also benefit from other Agreement provisions that will improve conditions for exports—provisions, for example, that ease regulatory barriers, reinforce intellectual property rights and ensure more transparent rules for market access. Overall, Alberta has a lot to gain from the Canada-Korea Free Trade Agreement.
Top benefits for Alberta:
- enhanced market access for many agricultural and agri-food products, including wheat, pork and canola oil;
- duty-free access for forestry and value-added wood products, including lumber and oriented strand board;
- duty-free access for industrial goods, including metals, aircraft parts and chemicals;
- improved access for professional services;
- predictable, non-discriminatory rules for Canadian investors;
- improved access to South Korea’s government procurement market;
- strong provisions on non-tariff measures, backed up by fast and effective dispute settlement provisions.
Opening new markets in South Korea for Alberta’s world-class products
Agricultural and agri-food products
Alberta’s agricultural and agri-food products sector employed over 75,000 people in 2012, and is a significant driver of economic activity in the province.
Alberta’s agricultural exports to South Korea were worth an annual average of $205.7 million from 2010 to 2012, led by wheat, pork, canola oil, un-roasted barley malt and tallow. Under the Canada-Korea Free Trade Agreement, Alberta will benefit from expanding exports of these and a wide variety of other products, including beef. Canadian agricultural exports to South Korea currently face high tariff rates, which averaged 52.7 percent in 2012.
“For the past few years, Canada’s key beef competitor, the United States, has enjoyed an increasing tariff advantage flowing from its FTA with South Korea, and Australia is poised to do likewise through its recent agreement with Korea. Their gain has been our loss. This announcement means Canadian beef will be able to once again compete for meaningful access in the South Korean market.”
Martin Unrau, Past President, Canadian Cattlemen’s Association
The Canada-Korea Free Trade Agreement will eliminate tariffs on 86.8 percent of agricultural tariff lines. This duty-free access will give Canadian agricultural products, including wheat, beef and pork, preferential access to the South Korean market and will create a level playing field on which Canadian producers can compete with South Korea’s current free trade agreement partners.
For example, South Korean tariffs will be eliminated on:
- wheat, from a current rate of up to 3 percent;
- pork and most processed pork products, from a current rate of up to 30 percent;
- beef and most processed beef products, from a current rate of up to 72 percent;
- refined and crude canola oil, from a current rate of 5 percent;
- beef fats/tallow, from a current rate of 8 percent;
- un-roasted barley malt, from a current rate of up to 269 percent;
- wheat flour, from a current rate of 4.2 percent; and
- certain bakery products, from a current rate of 8 percent.
“Although South Korea lifted its BSE restrictions on Canadian beef in 2012, the U.S.-Korea FTA was implemented that year and effectively prevented Canadian beef from fully capitalizing on the important South Korean market. This agreement will restore our ability to ship significant volumes of beef to South Korea, which adds value to every animal processed here in Alberta.”
Greg Bowie, Chair, Alberta Beef Producers
Sanitary and phytosanitary (SPS) measures are applied by governments to protect human, animal or plant life or health. These measures can from time to time impact trade in agricultural and agri-food products. The Agreement includes a chapter that addresses SPS issues in which Canada and South Korea agree to build on their shared commitments under the WTO on the application of SPS measures. Under the WTO SPS Agreement, parties recognize the rights of WTO members to take necessary measures for the protection of human, animal or plant life or health while ensuring these measures are based on science and do not unfairly restrict trade.
Under the Agreement, Canada and South Korea will establish a new bilateral SPS committee through which experts can collaborate and consult on SPS measures to enhance cooperation and facilitate trade by discussing issues before they become problems. This will benefit Canadian agricultural and agri-food exporters by helping to ensure that market access gains are not undermined by unjustified SPS trade barriers.
Reaping the benefits
South Korea is a net importer of agricultural and agri-food products, importing $20 billion worth of such products in 2012. Canada, a significant global supplier of high-quality agricultural products, is South Korea’s fifth-largest supplier of such products. The Agreement will further develop this relationship.
The Agreement will allow Albertan products to compete on a level playing field with other agricultural exporting countries that have signed or implemented free trade agreements with South Korea, including the United States and the European Union.
“The Canada-South Korea Free Trade agreement is good news for Alberta’s barley farmers, as the anticipated increase in demand for beef and pork exports will mean greater demand for feed barley. As demand for our exports grows, so too does the profitability for our local farmers. This agreement is the next step toward achieving a more secure agricultural future for barely farmers.”
Matt Sawyer, Chairman, Alberta Barley
Forestry and value-added wood products
The forestry products sector is made up of value-added wood products, other forestry products (such as cork and basketwork) and pulp and paper. Alberta’s forestry products sector employed over 18,000 people in 2012, and represents a significant component of the Albertan economy.
Alberta’s exports of forestry and value-added wood products to South Korea were worth an average of $125.9 million annually between 2010 and 2012. The free trade agreement with South Korea will provide a significant advantage for Canada’s wood and forestry producers and exporters in further expanding market opportunities in South Korea. While all South Korean pulp and paper tariff lines and the majority of other forestry product tariff lines are already duty-free, South Korean wood tariff lines have significant tariffs—as high as 10 percent—which present a competitive disadvantage for Canadian exporters.
Under the Canada-Korea Free Trade Agreement, all South Korean tariffs on forestry and value-added wood products will be eliminated. Over 57 percent of tariff lines for forestry and value-added wood products will be duty-free upon the Agreement’s implementation. A further 13.1 percent will become duty-free within three years. Duties on the remaining tariff lines of Canada’s exports will be eliminated within 10 years. Current duties average 2.9 percent, with tariff peaks of up to 10 percent.
With Canada’s current capacity to export to Asian markets, and the removal of South Korea’s tariffs on these products, the Agreement will provide the Canadian forestry sector with new market access, offering diversification and export opportunities to Canadian industry. This outcome on forestry and value-added wood products will provide Canada with market access commensurate with that obtained by the United States under KORUS.
For example, South Korean tariffs will be eliminated on:
- spruce, pine, and fir lumber, from a current rate of 5 percent;
- oriented strand board, from a current rate of 8 percent;
- fiber board, from a current rate of 8 percent;
- particle board, from a current rate of 8 percent; and
- plywood, from a current rate of up to 10 percent.
The Agreement contains strong provisions on non-tariff measures that will ensure that market access gains in the forestry and wood building products sectors are not undermined by unjustified trade barriers. For example, the Agreement requires the use of internationally accepted standards (in the absence of a compelling reason not to) and contains strong transparency-related commitments that go beyond existing WTO obligations, which will make it easier for Canadians and South Koreans to work together on the development of technical regulations and standards, and help to prevent the introduction of new technical barriers to trade, including in the areas of forestry and wood building products.
The Agreement also establishes various institutional mechanisms of relevance for this sector. For instance, the Agreement creates a sub-committee on trade in forest products that will facilitate addressing any issues related to trade in forest products. The Agreement also provides for a working group—specifically related to wood building products—designed to facilitate trade through cooperation and information sharing, including in the areas of standards and regulatory issues. The Agreement also establishes a sanitary and phytosanitary (SPS) committee that will enable experts to collaborate and consult on forestry-related SPS issues.
Reaping the benefits
Canada has a competitive advantage in the production of forestry and value-added wood products and is one of the top exporters worldwide. Canadian producers and exporters of forestry and value-added wood products already have the capacity to export to Asian markets. The Agreement will create new opportunities to further develop existing and new markets in South Korea and the Asia-Pacific region.
Some 212,000 hard-working Albertans and their families depend on the industrial goods sector for their livelihood, with the sector accounting for approximately 31 percent of Alberta’s GDP in 2012.
From 2010 to 2012, Alberta’s exports of industrial goods to South Korea were worth an annual average of $296.5 million. The Canada-Korea Free Trade Agreement will significantly improve market access opportunities for Alberta’s industrial goods sector by eliminating tariffs on all of Canada’s industrial goods exports.
The Canadian market is already largely open to imports, including those from South Korea. Mutual tariff elimination will help make Alberta exports of industrial goods more price competitive with South Korean domestic production. The Agreement will also help Alberta exporters maintain a competitive footing with major competitors who have already secured a free trade agreement with South Korea.
When the Agreement enters into force, over 95 percent of South Korean tariff lines for industrial products will be subject to immediate duty-free access. Alberta businesses stand to gain considerably when all South Korean tariffs on industrial goods are eliminated within 10 years. Without a free trade agreement, Canadian businesses would be at a disadvantage in the South Korean market against major competitors. The Canada-Korea Free Trade Agreement will create market access opportunities for Alberta exporters across a number of industries.
For example, South Korean tariffs will be eliminated on:
- nickel powder and flakes, from a current rate of 5 percent;
- aircraft turbo-propellers, from a current rate of 3 percent;
- certain chemical catalysts, from a current rate of 6.5 percent;
- carbon, from a current rate of 5.5 percent; and
- flywheels and pulleys, from a current rate of 8 percent.
Metals and minerals
Alberta’s diverse resource portfolio includes natural gas, oil, coal and minerals. More specifically, Alberta’s metal refining and minerals sector is a foundational industry that allows for infrastructure development as well as energy and natural resource production in Alberta. The world-class expertise found in Alberta’s metal manufacturing and refining sector ensures that demand for its goods and services is strong and that it is positioned to deliver high value both in Alberta and around the world. The metal and mineral goods sector represented 27.5 percent of the province’s total GDP in 2012 and employs more than 181,000 Albertans, creating employment opportunities that provide some of the highest earnings in the economy.
Metals: South Korea will eliminate its tariffs on nickel powder and flakes from a current rate of up to 5 percent, immediately upon the Agreement’s entry into force. This outcome is commensurate with KORUS.
Minerals: Tariffs on 94.2 percent of minerals will be eliminated immediately upon the Agreement’s entry into force, and all South Korean duties on mineral products will be eliminated within five years. South Korean duties on these products are currently as high as 8 percent. This outcome is commensurate with KORUS.
The Agreement’s investment chapter will benefit Canadian investors in the metals and minerals sector as South Korea has committed to providing non-discriminatory access to its mining sector. Canadian investors will also have access to an impartial dispute settlement mechanism to resolve disputes arising from the chapter on investment. This outcome is commensurate with KORUS.
Canada and South Korea recognize the importance of fostering cooperation and transparency in standards-related measures and have committed to encourage the use of internationally recognized standards and membership in multilateral arrangements to minimize duplicative certification and testing of products, including those related to medical devices.
The Agreement will also include a mechanism that will allow either party to raise concerns with the other party’s standards-related measures, with the goal of minimizing or eliminating the measures’ impact on trade. Canada and South Korea have negotiated provisions that will allow citizens of the other party to participate in the development of technical regulations and conformity assessment procedures on terms no less favourable than those that apply for their own citizens. This will help minimize or eliminate barriers before they come into place.
Minimizing the impact of technical barriers will help maximize market access for Alberta’s exports.
Reaping the benefits
Canada has obtained a tariff outcome—the elimination of all tariffs on industrial goods—that will level the playing field with key competitors such as the United States and the European Union, and provide enhanced market access opportunities in some specific areas of interest to Alberta. As a result, Alberta businesses stand to gain considerably from the Canada-Korea Free Trade Agreement.
Opening new markets in South Korea for Alberta’s world-class services
The services sector is a key driver of Alberta’s economy, accounting for 52.9 percent of the province’s total GDP and employing more than 1.5 million Albertans in 2012.
Canada’s services exports to South Korea are worth more than $750 million a year. Alberta’s key export interests in this vibrant sector include architectural, construction, environmental, financial, tourism, transportation, information and communications technology, and oil and gas services. Jobs in this sector are traditionally highly skilled and well-paying, creating important opportunities for Canadian expertise.
Improved access to markets
The Canada-Korea Free Trade Agreement will provide Canadian service suppliers with greater and more predictable access to the dynamic South Korean market. Once in force, the agreement will create a level playing field for Canadian service suppliers against key competitors from the United States and the European Union, which have implemented free trade agreements with South Korea.
- The Agreement includes significant improvements and new sectoral market access, which go well beyond South Korea’s obligations under the WTO’s General Agreement on Trade in Services (GATS) in many sectors of export interest to Canada. The Agreement will establish enhanced market access in areas such as professional services (e.g. foreign legal consultancy services, commercial education and training, research and development), environmental services, and business services. This outcome is commensurate with South Korea’s free trade agreement commitments to the United States and the European Union.
- The Agreement uses a “negative list” approach for listing reservations to the obligation of the cross-border trade in services chapter, which means that everything is open unless otherwise listed in a reservation.
- The Agreement also ensures that any future changes that aim to make it easier for Canada’s service providers to access the South Korean market (or for Canadian investors to obtain better treatment) will be locked in every time they bring improvements in access. This is referred to as the “ratchet mechanism.” This mechanism means that if South Korea liberalizes a law, policy or regulation that makes it easier for Canadians to conduct their services or investment activities in South Korea, the liberalization becomes South Korea’s new obligation under the Agreement.
Temporary entry for business persons
South Korea’s temporary-entry commitments under the Agreement are more ambitious than any of South Korea’s other free trade agreements. The Agreement’s temporary-entry provisions will provide new, preferential access to the South Korean market, facilitating movement between Canada and South Korea for business visitors, traders and investors, intra-company transferees, professionals (i.e. contract service suppliers and independent professionals) and their spouses.
Under the Agreement, Canadian firms can send their employees to South Korea to fulfill service contracts, for instance, in science, engineering and IT fields. Canadian independent professionals (i.e. self-employed professionals contracted directly by a South Korean or South Korean company) such as architects, engineers, management consultants and veterinarians may enter the South Korean market with a pre-arranged contract.
In addition, the Agreement will benefit the e-commerce and telecommunications sectors.
The telecommunications sector is important for the economies of Canada and South Korea. Not only is telecommunications a constantly growing service sector, it is one of the most important enablers in the modern economy, providing the means of delivering other services that Canadians depend on.
The Agreement will ensure that all players in the telecommunications market have fair access to networks and services in each other’s market and that regulators act impartially, objectively and in a transparent manner. Service providers and investors will benefit from increased transparency and predictability of the regulatory environment and secure, competitive marketplaces.
Electronic commerce was in its infancy 20 years ago. Today, e-commerce is a part of our daily lives. Canadians shop and plan holidays online, and buy and download software and entertainment content, including movies, television and music. Advertisers are making increased use of “smart advertising” on the Web to track our shopping habits and promote specific deals likely to interest us.
Canada and South Korea recognize the growing economic importance and changing nature of this technologically advanced sector. To facilitate trade in the digital economy, the Agreement includes a commitment whereby both parties will not levy customs duties, fees or other charges on digital products that are transmitted electronically. As well, Canada has agreed to important measures under the Agreement aimed at building trust and confidence in the digital environment, such as those having to do with the online protection of e-commerce users’ personal information.
Reaping the benefits
The Agreement provides Canadian service providers with improved protection, predictability and transparency for conducting business, as well as greater access to South Korea’s sophisticated services market.
Canadian gains under the Canada-Korea Free Trade Agreement will enable Canadian companies to compete on a level playing field with their major competitors in the South Korean market, giving them an advantage over competitors from other countries. Ultimately, this advantage will benefit the entire Canadian economy and lead to new jobs, growth and prosperity in a sector that exemplifies Canadian expertise.
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