The Canada-Korea Free Trade Agreement: Benefits and Opportunities for the Canadian Consumer Products 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 U.S., 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

• South Korea is the fifth-largest country for retail sales in Asia and the appetite for luxury and recreational goods continues to increase in this market.
• The South Korean market provides significant opportunities for Canadian companies in the following sub-sectors: outdoor wear and shoes, luxury goods (including fashion, accessories and cosmetics), and sports and leisure goods.
• In 2013, South Korea was the second-largest market for outdoor wear in the world, with $6.9 billion in sales representing an over 20% increase from the previous year.
• South Korea is the third-largest luxury market in Asia valued at $8.3 billion in 2013, and representing 2.5% of global luxury goods demand. For example, the male skin-care product market is valued at $900 million, growing at 18% annually.
• The sports and leisure goods market in South Korea is expected to grow steadily supported by a trend towards improved work-life balance and a 5-day work week. The rapid growth of the camping industry from $21 million in 2008 to a projected $647 million in 2014 presents opportunities for Canadian companies.

Improved Market Access for Canadian Consumer Products Exporters to South Korea

The CKFTA provides new opportunities for Canadian exporters of consumer products by eliminating 100% of tariffs and creating a level playing field with South Korea’s current FTA partners.

For example, the CKFTA eliminates South Korean tariffs on:

• sporting equipment (up to 13%);
• textiles and apparel (up to 13%);
• cosmetics (up to 6.5%)

In terms of luxury goods, tariffs on diamonds and certain furskins, with a current rate of up to 5 percent, have been eliminated as of January 1, 2015.

Increased Access for Services and Improved Temporary Entry

Canadian companies providing services related to the consumer products sector benefit from increased and more transparent and predictable access to the South Korean services market. For example, enhanced market access is granted to Canadian companies in services sectors that complement and support the sale of consumer products, including business services, professional services (such as research and development), and services incidental to manufacturing. This means that Canadian companies face reduced barriers when offering services in those sectors of the South Korean market.

The CKFTA also removes barriers to temporary entry for various professionals related to the consumer products industry – including engineers, market researchers and analysts, and sales representatives – 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 a 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 Canadian Consumer Products Sector

E-Commerce

The Electronic Commerce Chapter in the CKFTA seeks to facilitate electronic trade between Canada and South Korea. In particular, both countries are obliged to refrain from applying customs duties, fees or other charges to digital products transmitted electronically.  As well, the chapter seeks to facilitate electronic trade by seeking to address concerns that users of electronic commerce have when participating in online transactions. For example, the provisions on the protection of personal information and on consumer protection intend to build trust and confidence for users to engage in electronic commerce.

Investment

Canadian companies investing in the South Korean consumer products 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.

Intellectual Property

The CKFTA’s Intellectual Property chapter 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.

Origin Procedures and Trade Facilitation

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.

Government Procurement

The Agreement provides Canadian suppliers of products and services preferential access to procurement opportunities of South Korean central government entities. Through the Agreement, Canadian suppliers of products and services benefit from secure and predictable access to covered procurement by South Korean central government agencies for contracts valued above 100 million South Korean Won (roughly $100,000). South Korea’s overall government procurement market is estimated to be worth $105 billion annually.

Canadian consumer products 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).