For this latest Insight, H+K Canada had the privilege of partnering with our colleagues in Korea—namely CH Lee, senior vice-president—to examine the importance of the new Canada-Korea Free Trade Agreement (CKFTA) as well as potential challenges to watch out for going forward.

On March 11, 2014, President Park Guen-hye of the Republic of Korea and Prime Minister Stephen Harper of Canada announced the successful negotiation of the Canada-Korea Free Trade Agreement (CKFTA). This historic agreement represents an important leap forward for the bilateral relations between Korea and Canada, as it promises to significantly expand economic integration and business opportunities for companies operating in either or both countries.

Hill+Knowlton Strategies has offices both in Korea and across Canada. We frequently advise and assist clients in both countries with respect to a range of trade-related issues, including but not limited to, tariff and non-tariff barriers, rules of origin, agricultural commodity reforms, bilateral and multilateral agreements, sanitary and phytosanitary regulations and customs. Our approach combines traditional strategic counsel and tactical public affairs support with public relations and stakeholder engagement.

View from Korea

According to KIEP (Korea Institute for International Economic Policy), when tariff and non-tariff barriers have been eliminated as a result of the Korea-Canada FTA, the level of trade between the two countries is expected to increase as much as 1.8 times in the medium and long term. The FTA further signals Korea’s willingness to open its markets to global opportunities and provides Korea with preferential access to another G8 country and a second pillar of the lucrative North American market.

The Korea-Canada FTA is expected to be a great boon for Korea’s export of automobiles and auto parts to North America once Canadian import tariffs are lowered on Korean-made vehicles. A first mover advantage is also expected given that Korea has concluded its free trade agreement with Canada before any other Asia-Pacific market. This is particularly significant where Canada is already negotiating free trade agreements with other Asian countries with similar economies and industrial bases—most notably Japan.

For Canada, there will be massive market opportunities for agricultural, fisheries and livestock products, which are expected to flow into Korea in great quantities. The opportunity and challenge for Canadian producers, processors and other exporters will be to build a product quality image that can help Canadian products displace U.S. origin goods and suppliers that have already secured stable market positions as a result of the KORUS free trade agreement between Korea and the United States.

View from Canada

For Canada, the importance of a free trade agreement with the Republic of Korea cannot be overstated. It is the first such agreement that Canada has in Asia, and has the potential to serve as a framework for future agreements with other Asian economies, including Japan and India. Moreover, it helps alleviate the competitive disadvantage that Canada has had relative to the United States since the successful negotiation of the KORUS free trade agreement.

Given the relative size and strength of the Korean economy, the agreement will rank as one of the most significant for Canada alongside the North American Free Trade Agreement (NAFTA) as well as the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). Having now secured preferential access to Korea, after having recently done so with regards to the European Union, Canada has diversified its trade portfolio far beyond the United States and Mexico.

Moreover, while the CKFTA will clearly benefit agricultural and agri-food industries, including beef and pork, the Canadian government wants and expects the agreement to increase export opportunities for other sectors, including automotive, aerospace, information and communications technologies. The agreement is also intended to promote bilateral investment, trade in services and secure greater access for Canadian firms to the significant government procurement opportunities in Korea.

Lessons from KORUS

The free trade agreement between Canada and Korea comes two years after the KORUS free trade agreement between Korea and the United States, which came into force in March 2012. The implementation of the KORUS agreement has not been without its issues, and has generated concerns from various industry stakeholders. As Canada and Korea move to the implementation of the CKFTA, the KORUS example can serve as a guide to those who hope to benefit from the Canada-Korea agreement.

The second anniversary of KORUS was marked by complaints from industry concerning the continued presence of various non-tariff barriers that have purportedly limited the full potential of the agreement. Among the measures targeted by U.S. stakeholders include certain environmental standards, consumer protection regulations, rules of origin and the equivalency of standards—to the extent these fall outside the ambit of the KORUS agreement, they cannot be addressed through its remedy provisions.

The KORUS experience reaffirms the principle that consultation, cooperation and collaboration with government cannot end with the successful signing of an agreement. In order to ensure the full, fair and equitable implementation of the FTA, businesses must maintain a consistent level of interaction with public officials—ideally in both of the signatory countries—over the next year. The successful implementation of the Canada-Korea agreement requires that both countries learn from the mistakes of KORUS.