The Canada-Korea Free Trade Agreement and small and medium-sized enterprises

The Government of Canada is focused on creating jobs and opportunities for hard-working Canadians in every region of the country.

Providing businesses, especially the crucial small and medium-sized enterprises (SMEs), with new and improved market access so they can expand and compete globally is a key part of the government’s pro-trade plan, the most ambitious in the nation’s history.

On September 22, 2014, former Prime Minister Stephen Harper and Park Geun-hye, President of the Republic of Korea, witnessed the signature of the Canada-Korea Free Trade Agreement (CKFTA), Canada’s first free trade agreement in the Asia-Pacific region. Following legislative approvals and the completion of all domestic procedures required to implement the CKFTA in both countries, the CKFTA entered into force on January 1, 2015.

The CKFTA provides Canadian businesses and workers with unprecedented access to South Korea, directly benefiting Canada’s SMEs. Specific measures that will help SMEs to access the South Korean market include eliminating tariffs, locking in fair and predictable conditions for business and ensuring non-discriminatory treatment i.e. that each country treats the other’s companies and goods the same way as it treats its own.

Increased Market Access

The Agreement will result in increased trade opportunities through tariff elimination in a broad range of sectors, such as industrial goods (for example, aerospace, information and communications technology, metals and minerals, chemicals, plastics, pharmaceuticals, industrial machinery and cosmetics), agri-food products, forestry and value-added wood products, and fish and seafood products.

Simplified Origin Procedures and Trade Facilitation

The Agreement makes it easier and less costly for Canadian SMEs in a wide range of sectors to do business in the South Korean market.

For example, the Agreement simplifies the process of clearing goods through South Korean customs, thanks to:

• clear and transparent origin procedures that effectively administer the rules of origin without creating unnecessary obstacles to trade;
• access to advance rulings on the origin or tariff classification of products;
• the promotion of border procedures automated through the use of information technology in order to expedite procedures for the release of goods; and
• an impartial and transparent system for addressing any complaints about customs rulings and decisions.

Reduced Non-Tariff Barriers

The Agreement contains strong disciplines on non-tariff measures, which will help Canadian businesses to reap the benefits of the Agreement and ensure that market access gains are not undermined by lack of transparency or unjustified trade restrictions. Importantly, these strong disciplines on non-tariff measures are backed up by fast and effective dispute settlement provisions.

For instance, the Agreement:

• promotes and require (in absence of good reason not to) the use of internationally accepted standards that minimize duplicative certification and testing of products;
• improves transparency with respect to standards and regulatory development by ensuring that SMEs have access to information, such as laws, regulations and administrative rulings, that can affect trade;
• encourages cooperation in bilateral, regional and multilateral forums on ways to promote increased transparency;
• promotes quality management system guidelines for the regulation of medical devices and pharmaceutical products to facilitate safe bilateral trade in those products; and
• establishes a committee and prospectively a working group whereby any standards-related concerns can be addressed and dealt with on a timely basis, including concerns on wood building products and sanitary and phytosanitary issues.

Increased Access for Services and Improved Temporary Entry

Canadian SME service providers benefit from increased and more transparent and predictable access to the South Korean service market.

For example, Canadian SMEs benefit from preferential market access in key areas of export interest, which include research and development, environmental services, business services, services incidental to manufacturing and mining, wholesale trade, air and railroad transport services, legal consultancy services, and private and adult education.

The temporary entry provisions of the Agreement also benefit SMEs. The Agreement gives Canadian business people new and preferential access to the South Korean market by removing barriers to entry, such as economic needs tests. It also ensures that new barriers, such as quotas and proportionality tests, will not be introduced in the future.

The Agreement also provides preferential access for Canadian independent professionals, such as architects, engineers and management consultants, as well as broader coverage for Canadian firms sending professionals to South Korea to fulfill service contracts, for instance in the science, engineering or information technology fields.

These temporary-entry provisions are the most ambitious that South Korea has ever negotiated, which gives an advantage to Canadian SMEs over their U.S. and EU competitors.

South Korea: Gateway to Other Asian Markets

South Korea is a key gateway to the wider Asia-Pacific region and is geographically situated in an ideal location to facilitate trade with the rest of Asia.

The Agreement provides Canadians with access to new markets, customers and partnerships, creating stronger supply and production chains. Canadian SMEs can use South Korea as a strategic base for expanding their presence throughout the Asia-Pacific region, further increasing their global competiveness.

Canada already has significant foreign direct investment in South Korea, including in the automotive, transportation, financial services and life sciences sectors. The Agreement offers opportunities for Canadian firms already enjoying success in the South Korean market to grow further. In turn, it also creates new opportunities for Canadian SMEs looking to partner with these established Canadian firms, thereby expanding their access to Asian supply chains.