Korea and Canada has reached terms for a free-trade agreement (FTA) on March 11, 2014 (KST). Having started talks since July 2005, this agreement has taken about 9 years and 14 rounds of negotiations to establish. The FTA will diminish trade barriers between the two nations: both countries have pledged to remove tariffs on 97.5% of all goods within 10 years of the FTA’s implementation. The conclusion of the FTA opens a new era of economic relationship and strengthens the already positive bilateral relations between Korea and Canada. This is Korea’s twelfth free-trade agreement, with already having established FTAs with the Association of Southeast Asian Nations (ASEAN), Australia, Chile, Columbia, European Union (EU), European Free Trade Association (EFTA), India, Peru, Singapore, Turkey and United States. Meanwhile, Canada has FTAs in force with Chile, Columbia, Costa Rica, EFTA, Israel, Jordan, Panama, Peru and the North American Free-Trade Agreement (NAFTA).
Canada is Korea’s 25th largest trading partner. The new FTA with Canada is expected to yield the greatest results to the Korean auto industry. The auto industry accounts for 43% of all exports to Canada, or approximately 2.2 billion USD. Korean auto industry’s exports to Canada currently faces a 6.1% duty. This rate of duty will be reduced to zero in a period of 2 years. Most of Korean benefits from the FTA will likely come from manufacturing goods. The biggest concern for Korea regarding the FTA has been the harm it could bring on the agricultural sector, which is consequently the Canadian side’s largest benefiting sector. The duty rates for Canadian beef and pork are 40% and 22.5~25% respectively. With these tariffs being soon-to-be abolished, Korean meat producers have expressed concerns of their industries being harmed. After all, Canadian beef prices are only about 30% of the prices of Korean beef.
Canada’s trade with Korea has decreased by 1.5 billion USD since Korea has established free-trade agreements with the EU and the US. With the establishment of the Korea-Canada FTA, Canada hopes that this will increase trade with Korea by 32% and lift Canada’s GDP by 1.7 billion USD. Canadian exports to Korea mostly consists of natural resources. The top Canadian export to Korea is coal, and this is expected to remain largely unaffected. However, with the implementation of the FTA, Canada hopes to increase the agricultural exports to Korea. Canadian beef, pork and seafood exports are likely to increase with the deal. The main Canadian concern arises from the potential damage the deal may inflict on the Canadian auto industries in Ontario, which is the Korean side’s largest benefiting industry. With the already strong grounds Korean auto makers such as Hyundai and Kia have gained, Canadian auto industry fears the FTA will increase the already-stiff competition the Canadian automakers face.
The FTA is likely to be put on force by next year, with the nations still having to officially process it, still involving processes such as presenting the paperwork to the respective nations’ parliaments. As shown above, both nations will enjoy benefits in some sectors, and possibly harm in others, with the implementation of the agreement. However, the deal will hopefully increase Korean-Canadian trade, and also reinforce the already-strong bilateral relations between Korea and Canada.
Categories: KOREA-CANADA BLOG 2018