On March 11, 2014, Canada and South Korea concluded negotiations for a bilateral free trade agreement (the "Agreement"), which covers a wide range of goods, services and investments and marks Canada's first free trade agreement with an Asian market.
Korea is Canada's seventh largest merchandise trading partner and its third largest in Asia. With a GDP of over 1 trillion dollars, Korea is a strategically important market. It has the potential to provide Canadian companies with new opportunities to tap into Asian supply chains and the ability to benefit from other free trade agreements entered into by Korea.
The Agreement is also important as Canada joins two of its significant competitors, the European Union and United States, as countries with free trade agreements with Korea.
I. The Agreement
What follows is a summary of several key areas covered by the Agreement.
Market Access for Goods
Market access is a central pillar of this Agreement. Both Parties have agreed to ensure that goods are not subject to discriminatory treatment. On the first day the Agreement comes into force South Korea will remove duties on 81.9 percent of all its tariff lines. Canada will remove duties on 76.4 percent of all its tariff lines. Once fully implemented both Canada and South Korea will have eliminated duties on roughly 98 percent of all tariff lines.
Beef and Pork: South Korea will eliminate duties for pork in 5 to 13 years while duties for virtually all beef products of interest to Canada will be eliminated over 15 years. For beef, this is roughly the equivalent of what is contained in the US-Korea Free Trade Agreement.
Automotive: South Korea will eliminate all existing tariffs upon entry into force of the Agreement. Canada will eliminate its 6.1 percent tariff on all passenger vehicles in three annual cuts, with the first taking place on implementation. It will also eliminate tariffs on light vehicles within three to five years. Canadian tariffs on automotive parts will be phased out within 3 to 5 years, with an initial 68.9 percent of tariff lines to be duty free upon implementation.
The automotive sector will also benefit from rules of origin provisions, which define how goods qualify as Canadian in order to benefit from duty free entry into Korea. These are especially important for the automotive sector due to the integrated North American automotive manufacturing process. The Agreement allows Canadian automobile manufacturers to source automotive inputs from the United States while continuing to qualify as Canadian origin products under the Agreement.
The Agreement establishes a three person dispute settlement panel with accelerated timelines for disputes involving motor vehicles. Hearings will be accessible to the public and panels will be allowed to consider submissions by third party NGOs.
Fish and Seafood: South Korea will eliminate duties on 70 percent of its tariff lines within 5 years while 100 percent of duties on tariff lines will be phased out within 12 years. Correspondingly, Canada will eliminate duties on 77.2 percent of tariff lines upon implementation and all remaining tariff lines within 3 years of the Agreement.
Information and Communications Technology: South Korea will eliminate all tariffs upon entry into force of the Agreement. Canada will eliminate duties on 87.6 percent of tariff lines upon entry into force, with all remaining tariffs to be eliminated within 3 to 5 years.
Textiles/ Apparel: South Korea will eliminate duties on 99.8 percent of tariff lines upon entry into force of the Agreement. Canada will eliminate 5.7 percent of tariff lines upon implementation of the Agreement, with the remaining duties to be phased out over 3 years.
Wood and Forestry: South Korea will eliminate 85 percent of tariff lines within 5 years, with 100 percent of tariff lines becoming duty free within 10 years. Canada will eliminate all duties on tariff lines upon the Agreement entering into force.
Services and Investment
The Agreement provides access to each Party's service market using a "negative list approach"; the markets are open unless a Party specifically chooses to exempt a particular law or sector or industry. Certain services such as health and public education will be excluded from coverage. The Agreement includes a Most Favoured Nation clause, which will ensure that any benefits granted by South Korea in future trade agreements will be automatically extended to Canada.
Canadian financial service providers will be given access to the South Korean market equal to the best treatment provided to other foreign companies. The Agreement includes commitments to facilitate cross-border trade, notably in the sectors of portfolio management services and data processing operations. The Agreement also allows either Party to take measures to protect the stability and integrity of their financial system and provides specialized dispute settlement rules for financial services.
The investment chapter will have provisions that ensure protection against discriminatory and arbitrary laws and practices. Protection is also provided from expropriation without prompt and adequate compensation. The chapter follows a 'negative list approach", with the market fully open unless either Party specifically chooses to exempt a particular law or sector or industry. For example, the Agreement will not affect the Canadian government's authority to review certain investments under the Investment Canada Act. The Agreement grants investors of one Party the right to take the other Party to arbitration for alleged violations of the investment protections.
Canadian enterprises will be granted preferential access to Korean telecommunications networks and services for the supply of products and services. Each Party's regulators are required to act impartially, objectively and in a transparent manner toward telecommunications service suppliers.
Suppliers will have access to procurement opportunities from central government entities for contracts above 100,000 Canadian dollars. The Agreement does not cover provincial, territorial or municipal government procurement.
The Agreement provides intellectual property protection for the terms "Canadian whiskey", "Canadian rye whiskey", "Korean red ginseng", "Korean white ginseng", "Korean fresh ginseng" and "Icheon rice" (including their corresponding Korean language terms) as geographic indications.
The Canadian implementation process is expected to occur within the year.
The next step will be a legal "scrub" and translation. Once tabled in Parliament, there will be 21 sitting days where the Agreement may be debated. Afterwards, the Government will need to ratify the Agreement and introduce the requisite implementing legislation. Any such legislation will follow the standard legislative process, going through three readings in both the House of Commons and Senate before receiving Royal Assent and entering into force.
III. Concluding Observations
The Agreement covers in great detail essentially all aspects of Canadian-Korean trade. This bulletin highlights some of the more essential elements of the Agreement. It would be prudent for those seeking to take advantage of the benefits and prepare for the competitive challenges to thoroughly examine and understand the various elements that have been agreed upon by the Parties.