The Canada-Korea Free Trade Agreement: Benefits and Opportunities for the Canadian Aerospace Sector

The CKFTA is Canada’s first FTA in the Asia-Pacific region. It strengthens Canada’s presence in the important South Korean market and helps expand our economic footprint in this dynamic and vibrant part of the world. It also offers exporters, investors and service providers strategic access to regional and global value chains, and levels the playing field vis-à-vis their key competitors from the US, the EU, Australia and other countries that have concluded an FTA with South Korea. As such, the CKFTA provides a platform for Canadian companies to become increasingly competitive in the region. In terms of economic impact, the CKFTA is projected to boost Canada’s GDP by $1.7 billion and result in an increase in Canada’s exports to South Korea by over 30%.

Overview of Opportunities in South Korea

• In 2013, South Korea imported US$3.6 billion worth of aircrafts, parts and components.
• With the development of the KT-1 basic trainers and T-50/FA-50 advanced trainer jets/light combat aircraft, opportunities exist for Canadian parts companies to supply Korean aerospace companies producing these aircrafts.
• The existing South Korean Unmanned Aerial Vehicle programs as well as the launch of new aircraft programs such as the Korean Fighter Aircraft (KF-X) and the Light Armed Helicopter/Light Civil Helicopter also create opportunities for Canadian aerospace exporters
• Aerospace products of export interest to South Korea include turbo propellers, turbo jet and propeller parts, and flight simulators.

Improved Market Access for Canadian Aerospace Exporters to South Korea

The CKFTA significantly improves market access opportunities for Canada’s aerospace sector through the elimination of tariffs on all aerospace products as of January 1, 2015 (duties of up to 8 percent). This includes flight simulators, gliders, turbo propellers, and turbo jet and propeller parts.

This duty-free access gives Canadian aerospace exporters preferential access to the South Korean market, and levels the playing field vis-à-vis South Korea’s current FTA partners such as the United States and the European Union.

Simplified Origin Procedures and Trade Facilitation

The CKFTA makes it easier and less costly for Canadian aerospace companies to do business in the South Korean market. For example, the Agreement simplifies the process of clearing goods through South Korean customs in view of:

• clear and transparent origin procedures to administer effectively 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.

Increased Access for Services and Improved Temporary Entry

Canadian aerospace service providers benefit from increased and more transparent and predictable access to the South Korean service market. For example, Canadian companies benefit from preferential market access in key areas of aerospace export interest, which include research and development, and services incidental to air transport services.

The CKFTA also removes barriers to temporary entry for various professionals related to the aerospace industry, including engineers and physical scientists, to fulfill contracts in the South Korean market. The Agreement facilitates the movement of business persons by removing barriers to entry such as economic needs tests, and ensuring new barriers are not introduced in the future, such as quotas and proportionality tests.

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

Reduced Non-Tariff Barriers

The Agreement contains strong disciplines on non-tariff measures, which help Canadian businesses reap the benefits of the Agreement and prevent market access gains from being undermined by lack of transparency or unjustified trade restrictions. In addition, these strong disciplines are backed up by comprehensive bilateral dispute settlement provisions. Specifically, the Agreement:

• promotes and requires (in the 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 companies 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; and
• establishes a committee whereby any standards-related concerns can be addressed and dealt with on a timely basis.

Other key CKFTA benefits for the Aerospace Sector

Investment

Canadian manufacturers investing in the South Korean aerospace sector benefit from the Agreement’s investment chapter provisions.  These provisions provide Canadian investors with a more transparent and predictable investment environment, and help mitigate any risks associated with investing in South Korea. Among other things, the investment chapter provides protection against discriminatory and arbitrary treatment, protection from expropriation without prompt and adequate compensation, and access to independent international investor-state dispute settlement.

Government Procurement

Several South Korean central government entities that procure aerospace products and services are covered under the CKFTA, including the Korean Ministry of National Defence, the Defence Acquisition Program Administration, the Korea Coast Guard and the Korea Forest Service. Canadian aerospace companies benefit from secure and predictable access to covered procurement opportunities above a contract value of approximately $100,000 tendered by covered South Korean central government entities. Importantly, given national security considerations, the procurement of specialized military equipment is not covered by  FTAs, including the CKFTA. This includes equipment such as aircraft and communication systems when purchased by the South Korean Department of National Defence and the Defence Acquisition Program Administration. Accordingly, whether the procurement of aerospace goods or services is covered by the Agreement depends on both which procuring entity issues a tender, and the purpose of the procurement (e.g. military vs. non-military). South Korea’s overall government procurement market is estimated to be worth $105 billion annually.

Intellectual Property

The Intellectual Property chapter in the Canada-Korea Free Trade Agreement provides clear and transparent intellectual property rules that help protect Canadians that own copyright, patent or trademark rights in South Korea. The Agreement’s robust provisions on the enforcement of intellectual property rights help ensure that Canadian intellectual property rights-holders can do business with confidence in the South Korean market.

Canadian aerospace exporters thus stand to benefit considerably from the CKFTA.

For more information on the CKFTA and prospective benefits from this Agreement, please visit Canada-Korea Free Trade Agreement, or contact the Trade Commissioner Service in South Korea (seoul-td@international.gc.ca).