The Canada-Korea Free Trade Agreement: Impact on Canada

Abstract

In March 2014, after years of negotiations, Canada and the Republic of Korea finally concluded negotiations for a preferential trade agreement. On January 1, 2015, the Canada-Korea Free Trade Agreement (CKFTA) became effective. The CKFTA signifies a landmark agreement. The agreement represents Canada’s most recently effective free trade agreement (FTA) and its first FTA with a country from the Asia- Pacific. As such, the CKFTA has the potential to open access for future Canadian trade agreements with other countries from the Asia-Pacific region. The CKFTA also represents a movement of Canada towards reaching trade agreements with large emerging economies. Prior to the CKFTA, Canada had accomplished little since the North American Free Trade Agreement (NAFTA) to increase trade with large emerging economies. With the signing of the CKFTA, Canada now has an agreement that is bigger and broader in scope than that of even NAFTA. For Canada, the importance of the CKFTA lies in how it impacts Canadian consumers and producers. This capstone report looks to address this concern. To do so, the following report provides a comparison of Canada and the Republic of Korea, dissects the provisions of the CKFTA, and determines the likely effects of the CKFTA agreement. The report looks closely at the impact on what are considered some of Canada’s most sensitive sectors – namely the agriculture and agri-foods, the fish and seafood, and the automobile sectors. The report also illustrates the effect on welfare of eliminating tariffs in both a small and large country case. Finally, the report provides a quick comparison of the CKFTA to the US-Korea FTA and the Australia-Korea FTA. Overall, this report finds that the CKFTA has a small but positive impact on Canada. Though a small positive impact is not outwardly significant, the cost to Canada of not entering into the CKFTA would have been too high to not push the agreement forward. These costs would have risen in the form of lost trade opportunity, lost market growth and access, and a loss in trade competitiveness. Canada would likely have fallen well behind competitor nations like the European Union, the United States and Australia, all of whom had concluded FTAs with the Republic of Korea before Canada.