South Korea and Canada have initialed their bilateral free trade agreement (FTA), the South Korean government said Friday, with the official signing due in the second half of this year.
The trade pact was initialed by South Korean Deputy Trade Minister Choi Kyong-lim and his Canadian counterpart, Ian Burney, in Seoul on Thursday, according to the Ministry of Trade, Industry and Energy.
With the FTA, South Korea will immediately eliminate its 8 percent import tariffs on all automobiles and auto parts from the North American country while Canada will reduce its current 6.1 percent tariffs on South Korean products to 4 percent within 24 months.
The ministry had explained the disparity as stemming from the trade imbalance between the two countries.
In 2013, South Korea shipped over 130,000 vehicles, worth some $2.23 billion, to Canada, the world's fifth-largest market for South Korean cars. The country, however, only imported about $92 million worth of automobiles and auto parts from Canada in the same year.
In total, South Korea will completely remove its import tariffs on 98.4 percent of imports from Canada within 10 years following the implementation of the bilateral FTA. Canada will eliminate its duties on 98.7 percent of South Korean exports over the same period.
Canada was South Korea's 25th-largest trading partner in 2013, with the countries' bilateral trade volume coming to $9.92 billion.
Initialing is considered the last step before the official signing as it confirms the agreement in hand will no longer be subject to any further change.
The pact will be put to legal review and then translated into Korean, according to the ministry.
"The two countries have agreed to officially sign the Korea-Canada FTA within the second half of the year, and this agreement will be implemented following its ratification by the countries' respective legislatures," it said in a press release.
The initialing came three months after the two countries declared the conclusion of their FTA negotiations. They held 13 rounds of FTA talks since July 2005, but the talks were suspended for more than five years before resuming late last year.
The state-run Korea Trade-Investment Promotion Agency projected that autos, natural resource development, renewable energy and cultural content industries will be the main beneficiaries of the latest trade agreement for the Seoul side.
Lower tariffs will allow Canadian companies that have started to outsource certain components to bring down manufacturer costs to consider South Korean partners, particularly in the auto parts sector.
"Canada's No. 1 car parts manufacturer, Magna International, already made clear in 2012 that it is ready to outsource certain parts it uses from Asia, once tariffs comes down," KOTRA said in a press release.
In the resources development field, Canada has the fifth-largest oil sand and shale gas deposits in the world. KOTRA said that because infrastructure is needed to extract such energy resources from the ground, this can lead to South Korea's exports of associated equipment and materials.
"There is room for growth for South Korean engineering and construction materials suppliers," the agency said.
Moreover, South Korea can take a more active role in investing in the development of such resources and sign purchase deals, it said.
In the renewable energy field, the trade pact is expected to promote exports of industrial parts and engineering expertise. Some Canadian provinces have already eased minimum requirements for parts that must be made inside the country for renewable energy projects.
In the cultural contents field, the trade promoter said the success of the computer-animated comedy movie "The Nut Job," produced jointly by South Korea, Canada and the United States, showed the potential for closer ties. The movie grossed $77 million worldwide.
The FTA makes it easier for South Koreans to find work in Canada, allowing more personnel changes, according to KOTRA.
ToonBox Entertainment, the South Korean partner of the film, said the bilateral pact will fuel such exchanges and lead to more positive results down the road. (Yonhap)