Economy & Business

Korea-Canada FTA is not so “cool” anymore

It has been a couple months since the Canadian and Korean governments announced the signing of Korea-Canada FTA (“KCFTA”). Later in March, the Canadian government published “Final Agreement Summary.” In the absence of an actual text, or even a draft text, currently, this Summary is the best available information that exists regarding KCFTA.

I have reviewed this material some time ago and wanted to write something interesting about it. But it has been two months since, and only now I am sitting in my patio in this mid-May afternoon trying to write it up. And I give up and here is my excuse – this agreement is boring.

Recently, there was a speaker’s event at the Korean embassy by a renowned trade expert Mr. Weekes of Bennett Jones. Mr. Weekes described KCFTA to be a “modern” trade agreement and praised it for going beyond traditional boundaries of trade deals. His messages were predictable. And who can blame him for catering to his host (the Korean embassy) and its guests?

That said, what is the truth of KCFTA?

According to the Summary, and as widely reported by various media outlets already, the core of KCFTA is that it sets out to eliminate tariffs on almost all Korean exports to Canada (97.8% of all Canadian tariff lines once the agreement is fully implemented) and Canadian exports to Korea (98.2% of all Korean tariff lines by the same time). But this is merely in line with what Korea has already signed with other countries recently: under Korea-US FTA, that already came into force in March 2012, 98% of the Korean tariff lines and 99% of the US tariff lines are to be eliminated upon full implementation; under yet to be ratified/implemented Korea-Australia FTA, 99.8% of the Korean tariff lines are to be eliminated upon full implementation.

In agriculture, beef and pork in particular, Canada again got the same bargain that was offered to the US and Australia – except only that Canada got the deal later. It means that Korean tariffs on Canadian beef and pork will be gradually eliminated at the same or similar rate as they do for the American and Australian competitors. Once again, the only difference in this regard is that the tariffs against Canadian beef and pork will decrease later in time – the tariffs for the American beef and pork have already begun decreasing since Korea-US FTA came into force last year, and my speculation is that Korea-Australia FTA will come into force before KCFTA comes into force as well (note that the full text of Korea-Australia FTA has been released, while the Korean and Canadian governments are still in a drafting mode).

Likewise, nothing else in the market access is striking, and they are generally in line with Korea’s other recent FTAs.

Besides market access, there is little to talk about at all:

  • Korea will eliminate tariffs on Canadian automobiles at once upon implementation of KCFTA, and the rules of origin will allow Canadian automobiles manufactured with US-made parts to be treated as made-in-Canada. Since the US manufactured automobiles will face tariffs when shipped into Korea, one could speculate that the Big 3 of the US may shift further production into Canada. However, under the Korea-US FTA, US exports of automobiles will be tariff free by the fifth year, or in 2017 in any case. Also, according to the US auto industry itself, tariffs are not what is holding their back from selling to Korea, and the real trouble is non-tariff barriers, such as environmental regulations.
  • On regulatory measures (such as technical standards and sanitary and phytosanitary measures), KCFTA largely reaffirms the countries’ existing obligations under the WTO. Similarly, Korea and Canada merely reaffirms their existing obligations with respect to trade remedies under the WTO.
  • There is no headline provisions for trade in services or investments. Inclusion of an investment chapter could be viewed as a major milestone, in that it provides for an investor-state dispute settlement system; but in reality, large corporations who are the users of such systems, can easily engage in forum shopping. A case in point: the first investment dispute against Korea was filed by a largely US-based investor under Korea-Belgium Investment Treaty, using its Belgian affiliate.
  • No sub-national government entities are covered by the KCFTA’s government procurement chapter (unlike what is reported to be the case under Canada-EU FTA). Again, KCFTA merely reaffirms existing obligations of Korea and Canada under the WTO. The monetary threshold covered by the procurement provisions would be reduced, but only to the same threshold that applies to the US companies under Korea-US FTA.
  • No big news under the intellectual property provisions, unlike Canada-EU FTA (read “nothing new” and it is “business as usual”). Geographic indicator provisions are new, but they are uncontroversial to put it mildly (I bet you that there are no Canadian rice producers exporting rice to Korea under the Incheon Rice brand name, and that there are no Korean whisky producers exporting to Canada under the Canadian Whisky label.).
  • KCFTA has nothing “cool” like what the participants/stakeholders in TPP and TTIP are discussing, such as rules for state-owned-enterprises, monetary policy (i.e., currency undervaluation), and regulatory convergence.
  • One area of significance is the institutions to be set up under KCFTA. It creates numerous forums (i.e., bilateral committees for specific sectors, etc) for ongoing discussions, thus opportunities for further developments down the road.

In the end, this agreement is “modern” as of 2008, when the negotiation halted. Fast forward to 2014, there is nothing interesting here and all the “cool” aspects have gotten old, if not outdated (by the latest cutting-edge TPP and TTIP discussions). Of course, having one is better than not having one – it gives the Canadian and Korean traders a level playing field vis-a-vis their competitors elsewhere (in the US in particular). I am not denying that, but to say that KCFTA is something revolutionary is simply incorrect.

Categories: Economy & Business

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