2014

BC and CKFTA

Introduction

South Korea is British Columbia’s fourth-largest trading partner and export destination. Between 2010 and 2012, annual exports averaged $2.18 billion while two-way trade reached $10 billion. The Canada-Korea Free Trade Agreement (CKFTA) will eliminate tariffs on almost all of British Columbia’s key exports and provide access to new opportunities in the South Korean market. In addition, exporters will benefit from other Agreement provisions, including:

  • Greater conformity in regulations and standards;
  • Improved access for professional services;
  • Strong provisions on non-tariff measures, backed up by fast and effective dispute settlement mechanisms; and
  • Improved access to South Korea’s government procurement market.

Below are quick snapshots of how the Canada-Korea Free Trade Agreement will benefit the various economic sectors in British Columbia.

  1. Industrial goods (including metals and minerals)

The industrial goods sector comprises about 9 percent of British Columbia’s GDP and employs about 94,000 workers. From 2010 to 2012, BC’s exports of industrial goods to South Korea recorded an annual average of $1.76 billion, of which $1.70 billion were metals and minerals. The CKFTA, once in force, will immediately eliminate tariffs on 95 percent of industrial goods exports. Other tariff lines will be eliminated within 10 years. South Korean tariffs will be eliminated on:

  • Chemicals, from a current rate of up to 8 percent;
  • Scientific instruments, from a current rate of up to 8 percent;
  • Industrial machinery, from a current rate of up to 13 percent;
  • Aluminum lines, from a current rate of up to 8 percent; and
  • Minerals, from a current rate of up to 8 percent.

The Agreement’s investment chapter also provides non-discriminatory access to BC’s mining sector. Further, Canadian investors will have access to an impartial investor-state dispute settlement mechanism.

  1. Forestry and value-added wood products

The forestry products sector is made up of value-added wood products, forestry products like cork and basketwork, and pulp and paper. In 2012, the BC forestry products sector employed 56,000 people with exports to Korea at $327.9 million. Upon entry into force, the CKFTA will eliminate all South Korean tariffs on forestry and value-added wood products, more than half of which will see immediate duty-free access upon implementation. 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;
  • Western hemlock lumber, from a current rate of 5 percent;
  • Wood beams and arches, 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 has created a sub-committee to help address issues related to trade in forest products. A sanitary and phytosanitary (SPS) committee has been established to enable experts to collaborate and consult on forestry-related SPS issues.

  1. Fish and seafood products

Approximately 7,200 British Columbians work in the fish and seafood products industry. Fish and seafood exports to South Korea reached $8.1 million annually between 2010 and 2012. Currently, Canadian exports face tariffs of up to 47 percent, with an average of 16.5 percent.

Tariff elimination on fish and seafood products will take longer than others. About 70 percent will see their tariff lines duty free within five years; the remaining lines be eliminated within 12 years.

For example, South Korean tariffs will be eliminated on:

  • Frozen rays and skates, from a current rate of 10 percent;
  • Frozen sole, from a current rate of 10 percent;
  • Salmon, from a current rate of up to 20 percent; and
  • Frozen crab, from a current rate of up to 20 percent.

Robust SPS provisions have been included to ensure that market access gains are not undermined by unjustified SPS trade barriers.

  1. Agricultural and agri-food products

British Columbia’s agricultural and agri-food products sector employed over 52,000 people in 2012. From 2010 to 2012, agricultural exports to South Korea were worth an annual average of $74 million, led by food preparations, animal and vegetable fats, tallow, wheat flour and pork. In 2012, South Korean tariffs on Canadian agricultural exports averaged 52.7 percent – the highest among all Canadian exports.

The CKFTA will eliminate tariffs on 86.8 percent of agricultural tariff lines. These include:

  • Wine (including icewine), from a current rate of 15 percent;
  • Beef fats/ tallow, from a current rate of up to 8 percent;
  • Wheat flour, from a current rate of 4.2 percent;
  • Most food preparations, from a current rate of up to 30 percent;
  • Dried and fresh/chilled cranberries, from a current rate of 45 percent;
  • Blueberries and other berries, from a current rate of 30 to 45 percent; and
  • Mixed vegetable/animal fats and oils, from a current rate of 8 percent.

BC cherries and blueberries industries are expected to benefit significantly from the CKFTA. In 2012, BC’s exports of fresh and frozen cherries and blueberries were worth $210.8 million. South Korea is a net importer of agricultural and agri-food products, importing $20 billion worth of such products in 2012. Increased access to the South Korean market will create new opportunities for the BC cherries and blueberries industry.

  1. Professional Services

The services sector is the engine of British Columbia’s economy, accounting for 75.6 percent of the province’s total GDP and employing close to 1.9 million people in 2012.

Canada’s services exports to South Korea are worth more than $750 million a year. BC’s key export interests include professional services, environmental services, information and technology services, oil and gas, mining, clean energy, transportation and tourism. The CKFTA will provide Canadian service suppliers with greater and more predictable access to the South Korean market. Key provisions include:

  • Enhanced market access for professional services (e.g. foreign legal consultancy services, commercial education and training, research and development), environmental services and business services, which go well beyond South Korea’s obligations under the WTO’s General Agreement on Trade in Services;
  • Adoption of a “negative list” approach, which means that the agreement assumes coverage for all services unless otherwise listed in a reservation; and
  • “Ratchet mechanism,” where any future changes by South Korea’s government that aim to liberalize trade will become a new obligation under the Agreement.

Overall, the Canada-Korea Free Trade Agreement is expected to bring substantial economic benefits to British Columbia. It may represent the first step toward diversifying the province’s export market.

 

Source: Adopted from the Department of Foreign Affairs, Trade, and Development Canada website

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