The Canada-Korea Free Trade Agreement: Benefits and Opportunities for the Canadian Oil & Gas 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 one of the world’s leading importers of energy, relying on imports to meet 97% of its energy requirements (which represents 2% of global energy demand). In 2013, South Korea was the second-largest importer of liquefied natural gas (LNG) and the fifth-largest net importer of oil.
• The overall natural gas demand in South Korea is predicted to grow by 1.7% annually until 2035.
• Canada is one of the largest destinations for South Korea’s oil and gas investments abroad. There is an increased level of interest from South Korean private sector companies in opportunities to diversify their supply sources and take advantage of new gas developments in North America, including shale gas and other unconventional gas supplies.
• There exist opportunities for Canadian energy companies to partner with South Korean companies on projects such as upstream exploration, infrastructure development, and research and development on energy related technologies.  

Improved Market Access

Canada is well positioned to meet South Korea’s growing energy demand, and the CKFTA provides new opportunities for Canadian oil and gas exporters. With the CKFTA’s entry into force on January 1, 2015, LNG became duty-free (duty rates were 3%). South Korea also removed tariffs on more than 88% of Canadian exports of petroleum products, with all remaining tariffs eliminated within five years. Tariff elimination gives Canadian exporters preferential access to the South Korean market, and levels the playing field vis-à-vis South Korea’s current FTA partners. While Canada does not currently export LNG to South Korea, duty-free access on LNG and other products will become increasingly important over time.

Simplified Origin Procedures and Trade Facilitation

The CKFTA makes it easier and less costly for Canadian oil and gas 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 oil and gas 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 export interest, which include research and development, and services incidental to the oil and gas sector.

The CKFTA also removes barriers to temporary entry for various professionals related to the oil and gas 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 a lack of transparency or unjustified trade restrictions. 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 Oil & Gas Sector

Investment

Canadian companies investing in South Korea 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 Intellectual Property chapter in the CKFTA 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.

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 oil and gas 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).