Canada-Korea Free Trade Agreement (CKFTA)
How the Canada-Korea Free Trade Agreement Will Benefit Manitoba
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Creating jobs and opportunities for Manitobans
Manitoba stands to benefit significantly from preferred access to the South Korean market. South Korea is already Manitoba’s sixth-largest export destination, with exports from 2010 to 2012 worth an annual average of $143.8 million.
Upon entry into force, the Canada-Korea Free Trade Agreement will eliminate tariffs on almost all of Manitoba’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, Manitoba has a lot to gain from the Canada-Korea Free Trade Agreement.
Top benefits for Manitoba:
- enhanced market access for many agricultural and agri-food products, including wheat and pork;
- enhanced market access for industrial products, including nickel, aircraft parts and scientific instruments;
- 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 Manitoba’s world-class products
Agricultural and agri-food products
Manitoba’s agricultural and agri-food products sector employed over 33,000 people in 2012, and is a significant driver of economic activity in the province.
Manitoba’s agricultural exports to South Korea were worth an annual average of $106.8 million from 2010 to 2012, led by wheat and pork. Manitoba will benefit from expanding exports of these and a wide variety of other products, including pulses, beef, special crops, pig fats and canola oil. Canadian agricultural exports to South Korea currently face high tariff rates, which averaged 52.7 percent in 2012.
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 pork, wheat and other grains, 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 FTA 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;
- rye and rye seed, from a current rate of up to 108.7 percent;
- oats and oat seed, from a current rate of up to 554.8 percent;
- kidney beans and white pea beans, from a current rate of 27 percent;
- refined and crude canola oil, from a current rate of 5 percent;
- potatoes, from a current rate of 18 percent; and
- pig fats, from a current rate of up to 3 percent.
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 Manitoban products to compete on a level playing field with other agricultural exporting countries that have signed or implemented an FTA with South Korea, including the United States and the European Union.
“The chamber supports the free trade agreement with South Korea, which will benefit Manitoba’s dynamic economy across all sectors. We look forward to working with government and our members on the new opportunities this agreement will provide.”
Chuck Davidson, President and CEO, Manitoba Chambers of Commerce
Some 32,000 hard-working Manitobans and their families depend on the industrial goods sector for their livelihood, with the sector accounting for approximately 11 percent of Manitoba’s GDP in 2012.
From 2010 to 2012, Manitoba’s exports of industrial goods to South Korea were worth an annual average of $33.5 million. The Canada-Korea Free Trade Agreement will significantly improve market access opportunities for Manitoba’s industrial goods sector by eliminating tariffs on all of Canada’s industrial goods exports.
The Canadian market is already largely open to global imports, including those from South Korea. Mutual tariff elimination will help make Manitoba exports of industrial goods more price competitive with South Korean domestic production. A free trade agreement with South Korea will also help Manitoba exporters maintain a competitive footing with competitors who already benefit from an FTA 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. Manitoba businesses stand to gain considerably when all South Korean tariffs on industrial goods are eliminated within 10 years. Without an FTA, Canadian businesses would be at a disadvantage in the South Korean market against major competitors. The Agreement will create market access opportunities for Manitoba exporters across a number of industries.
For example, South Korean tariffs will be eliminated on:
- nickel, from a current rate of up to 8 percent;
- aircraft parts, from a current rate of up to 8 percent;
- chemicals, from a current rate of up to 8 percent;
- scientific instruments, from a current rate of up to 8 percent; and
- industrial machinery, from a current rate of up to 13 percent.
Metals and minerals
Canada, one of the most resource-rich countries in the world, is a global giant in mineral exploration and mining, producing more than 60 minerals and metals in Canada and operating in 100 countries around the world. The metal and mineral industry is a significant driver of economic growth, contributing close to $144.1 billion to Canada’s GDP in 2012. This sector employs more than 387,000 Canadians, creating employment opportunities from coast to coast to coast.
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 that Canada sold to South Korea between 2010 and 2012 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 Manitoba’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 Manitoba. As a result, Manitoba businesses stand to gain considerably from the Canada-Korea Free Trade Agreement.
Opening new markets in South Korea for Manitoba’s world-class services
The services sector is by far the largest sector of Manitoba’s economy, accounting for approximately 70.7 percent of the province’s gross domestic product in 2012, or $36 billion. The services sector generates more than three quarters of total employment in the province.
Canada’s services exports to South Korea are worth more than $750 million a year. Manitoba’s key exports interests in this vibrant sector include business and professional services, construction, engineering and architectural services, and marketing and distribution 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, both of whom 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 agreements 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 will ensure 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 part of our daily lives. Canadians shop and plan holidays online, and buy and download software and entertainment content, including movies, television programs 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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