January 15, 2015 – Canadians will likely enjoy $2.1 billion in additional household income by 2035 as a result of the Canada-Korea Free Trade Deal (CKFTA), which entered into force January 1, 2015, according to a new C.D. Howe Institute report. In “The Canada-Korea Free Trade Agreement: What it Means for Canada,” authors Dan Ciuriak, Jingliang Xiao and Ali Dadkhah provide the first in-depth analysis of Canada’s first trade agreement with an Asian economy.
Using a leading-edge model that captures linkages across economic sectors, the authors find the increase in Canada’s GDP in value terms will be about $3.1 billion, driven primarily by expansion of two-way goods trade. The CKFTA will also spur some modest job increases – about 6,300 for unskilled workers and 2,200 for skilled workers.
“Preferential trade agreements are reshaping the global competitive landscape.” remarked Ciuriak. “The major Asia-Pacific economies have already signed trade deals with many of Canada’s export competitors. The CKFTA is an important step in re-levelling the playing field for Canadian enterprise.”
In terms of sector-specific impacts, the CKFTA expands Canadian agricultural output, especially beef and pork production, and boosts non-traded services. However, the automotive sector is negatively impacted with a predicted output decline of about $114 million. Overall, a good portion of the bilateral trade gains for both countries are made at the expense of third countries, reflecting the preferential nature of the deal.
The authors conclude that there’s a difference between signing trade agreements and putting them into practice. It will be a challenge for Canadian companies to pierce the Korean chaebol system, which are groups of formally independent companies linked to a controlling family. As well, Canada should carefully monitor any renewed attempt by the Bank of Korea to keep their currency artificially low, which could put Canadian firms at a disadvantage.
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. It is Canada’s trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review. It is considered by many to be Canada’s most influential think tank.
Click here for the full report.
For more information contact: Dan Ciuriak, Director and Principal, Ciuriak Consulting Inc. and Research Fellow at the C.D. Howe Institute. Phone: 416-865-1904 Ext. 9997; E-Mail: kmurphy@cdhowe.org.