Korea–Canada FTA at Ten: A Strategic Assessment of Trade Structure Evolution and Intermediate Goods Dynamics
Received: 2025-05-05 ; Accepted: 2025-06-05
Published Online: 2025-06-30
Abstract
Canada’s federal elections in April 2025 marked a decisive moment in the country’s political landscape—not only due to the continuation of the Liberal Party’s hold on power under the leadership of Mark Carney, but also because of the adverse geopolitical context created by growing political and economic tensions with the United States. Tariff threats and rhetorical provocations by U.S. President Donald Trump played a significant role in the electoral outcome, swaying key sectors of the electorate toward a more explicit defense of Canadian sovereignty. This article analyzes the election results, party dynamics, campaign narratives, and the implications for Canada-U.S. bilateral relations.
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Introduction
The Korea–Canada Free Trade Agreement (CKFTA), enacted in 2015, marked Canada’s first bilateral FTA with an Asian country. Over the past decade, CKFTA has significantly reshaped trade flows between the two economies, resulting in increased volume, diversification of traded goods, and evolving industrial linkages. Korea has become a prominent exporter of high-tech finished products such as automobiles, EV batteries, and electronics, while Canada has increasingly specialized in exporting intermediate goods—particularly mineral-based inputs like coal, copper, and nickel.
These trade patterns have deepened bilateral supply chain interdependence, reflecting not only economic complementarities but also strategic considerations. In a period marked by global uncertainty—triggered by COVID-19 disruptions, the U.S.–China rivalry, and geopolitical tensions in Eastern Europe—the concept of “economic security” has emerged as a new lens through which trade policy is being assessed.
This study aims to provide a strategic reassessment of CKFTA after ten years, with a particular focus on intermediate goods dynamics and value-added linkages. Rather than focusing solely on tariff elimination or headline trade volumes, we explore how CKFTA has contributed to structural shifts in production and supply networks. Using a combination of bilateral trade statistics, HS code-level data, and the OECD’s Trade in Value Added (TiVA) framework, this paper offers both a descriptive and interpretive analysis of Korea–Canada trade transformation.
Our findings inform policy discussions around supply chain resilience, trade governance, and the potential for deeper cooperation under multilateral frameworks such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Literature Review
Economic analyses of free trade agreements have traditionally drawn upon theories of trade creation and diversion (Viner, 1950), gravity models (Tinbergen, 1962), and more recently, global value chain perspectives such as the Trade in Value Added (TiVA) framework developed by the OECD and WTO (2013). These models highlight how FTAs affect both the volume and the composition of trade, particularly through their influence on production fragmentation and input sourcing.
In the context of Korea–Canada trade, previous studies have mostly focused on early CKFTA outcomes. Lee and Macdonald (2017) found immediate gains in Korea’s automotive exports and Canada's agricultural products. Park et al. (2021) expanded this view by linking FTAs to global value chain (GVC) integration, emphasizing Korea’s strategic use of intermediate inputs across industries.
However, gaps remain in understanding how CKFTA has influenced bilateral supply chain dynamics over time, particularly with respect to upstream–downstream specialization. Most existing studies are either cross-sectional or lack sector-specific TiVA tracing. Recent work by the OECD (2023) and UNCTAD (2022) highlights the increasing importance of intermediate goods trade in strategic sectors such as electric vehicles, semiconductors, and clean energy—domains where both Korea and Canada are actively expanding.
This paper contributes to the literature by combining macro-level trade data with TiVA analysis to trace Canada’s embedded value in Korea’s exports. By focusing on the evolving composition of intermediate and finished goods, our approach sheds light on the structural consequences of trade liberalization and identifies opportunities for institutional coordination in supply chain governance.
Trade Structure Trends and Intermediate Goods Dynamics
This section examines the evolution of Korea–Canada trade flows over the past decade, highlighting the increasing dominance of intermediate goods in Canada’s exports to Korea and the structural reorientation of Korea’s exports to Canada toward high-value finished goods. By integrating trade statistics, HS-level product classification, and macroeconomic indicators, we provide a descriptive narrative that traces bilateral trade dynamics since the enactment of the CKFTA.
Bilateral Trade Growth and Asymmetry (2014–2023)
Following the implementation of the CKFTA in 2015, total bilateral trade between Korea and Canada has grown substantially. Korea’s exports to Canada nearly doubled from USD 4.2 billion in 2014 to USD 8.4 billion in 2023, registering a compound annual growth rate (CAGR) of approximately 7.8%. During the same period, Canada’s exports to Korea increased more modestly from USD 4.3 billion to USD 6.2 billion.
This asymmetrical growth reflects the divergent nature of each country’s export profile: Korea has focused on expanding its share of manufactured finished goods, while Canada’s export gains have concentrated in resource-based intermediate inputs. This complementary trade structure is further reinforced by the global push for decarbonization and electric vehicle (EV) production, in which Korea is a leading manufacturer and Canada is a key supplier of raw materials.
Rise in Intermediate Goods in Canadian Exports
Intermediate goods now dominate Canada’s export basket to Korea. In 2014, these products accounted for approximately 55% of Canada’s total exports to Korea. By 2022, that share had risen to 72%, before slightly declining to 68% in 2023 due to commodity price normalization following the post-Ukraine war spike.
The key intermediate exports include bituminous coal (HS 2701), copper ore (HS 2603), nickel (HS 7502), iron ore (HS 2601), and potash (HS 3104). These raw materials feed directly into Korea’s downstream production in industries such as electric vehicles, rechargeable batteries, steel manufacturing, and petrochemicals. Notably, nickel exports from Canada to Korea have nearly doubled between 2017 and 2023, in response to Korea’s expanding EV battery industry.
Korea’s Export Shift Toward High-Tech Finished Goods
In contrast, Korea’s exports to Canada have shifted markedly in favor of high-value-added finished products. Automobiles now represent over 50% of Korea’s total exports to Canada. This structural shift reflects Korea’s comparative advantage in high-efficiency manufacturing and the increased integration of its firms into global supply chains for vehicles, electronics, and battery components.
Notably, many of these finished goods incorporate upstream intermediate inputs that originate from Canadian raw materials. This vertical integration of the supply chain—resource inputs from Canada embedded in Korea’s finished exports—underscores the strategic complementarity between the two economies.
Regression analysis (based on annual growth rates from 2015–2023) yields the following:
• Pearson correlation coefficient: r = 0.456
• OLS coefficient: 0.1605
• R-squared: 0.208, p = 0.217 (n = 9)
Though not statistically significant at the 5% level, results imply a moderate positive linkage between Korea’s import of Canadian intermediate goods and its finished goods export growth, particularly in automobiles and electronics.
Correlation Between Intermediate Imports and Finished Goods Exports
To explore the relationship between Korea’s imports of Canadian intermediate goods and its exports of finished goods to Canada, we analyzed annual growth rates from 2015 to 2023. The Pearson correlation coefficient between the two was r = 0.456, and an OLS regression yielded a coefficient of 0.1605 (R² = 0.208, p = 0.217). Although the results indicate a moderate positive association, the relationship is not statistically significant due to the small sample size and lack of control variables.
Given these limitations, we interpret the results as suggestive rather than conclusive. The observed pattern supports a narrative of supply chain interdependence but does not establish causality. Future research could incorporate quarterly or firm-level panel data for a more robust econometric evaluation.
Macroeconomic and Trade Context
From a macroeconomic perspective, the growing importance of intermediate goods in Korea–Canada trade mirrors broader global trends. Korea’s role as a technology-intensive export hub depends increasingly on secure access to strategic raw materials, while Canada’s Indo-Pacific Strategy explicitly identifies Korea as a priority partner in critical mineral cooperation.
Moreover, Korea’s reliance on Canadian inputs has become more prominent amid disruptions in global supply chains caused by the COVID-19 pandemic, geopolitical tensions, and climate policy shifts. These changes have elevated the strategic significance of bilateral trade not only in terms of volume but also in the resilience and structure of shared production networks.
There is a moderate positive relationship between the two, suggesting that increases in Canada's resource-based exports (inputs) may partially enable Korea's finished goods export growth.
TiVA Perspective: Estimating Canadian Value in Korean Exports
Understanding the origin of value in international trade has become increasingly important in a global economy characterized by fragmented production networks and cross-border interdependencies. The Trade in Value Added (TiVA) framework, developed jointly by the OECD and the WTO, offers a robust methodology to decompose gross exports into domestic and foreign value-added components. This perspective is particularly relevant for analyzing Korea–Canada trade, where upstream resource inputs from Canada are embedded in Korea’s high-tech finished goods.
According to OECD TiVA indicators, roughly 20–25% of Korea’s total exports include foreign value-added content. While Canada represents a relatively modest portion of this foreign share, its contribution is concentrated in strategic sectors such as electric vehicle batteries (nickel, cobalt), automotive parts (aluminum, copper), and packaging materials (wood pulp).
By triangulating HS-level trade data from UN Comtrade with sectoral TiVA coefficients, we estimate that Canadian value-added accounts for approximately 2.3% of the foreign value embedded in Korea’s gross exports to Canada. Though numerically small, this value is disproportionately significant in sectors aligned with global decarbonization trends and high-efficiency manufacturing.
The descriptive nature of this estimate warrants cautious interpretation, as it reflects average sectoral relationships rather than firm-level production data. Nonetheless, the analysis reveals meaningful bilateral interlinkages that go beyond headline trade figures. For example, Korea’s expansion in battery and electronics exports is likely facilitated by a stable supply of Canadian mineral inputs, and this mutual dependency creates opportunities for long-term industrial collaboration.
From a policy standpoint, TiVA analysis offers a valuable lens to enhance supply chain transparency, inform procurement strategies, and align industrial planning. Institutionalizing joint TiVA data monitoring—through bilateral observatories or digital dashboards—would enable both governments to trace value creation across borders and respond strategically to disruptions.
As Korea and Canada deepen ties under CKFTA and broader platforms like CPTPP, a TiVA-based governance approach can serve as the backbone of resilient, inclusive, and future-oriented economic cooperation.
Structural Complementarities and Strategic Risks
The trade relationship between Korea and Canada exhibits a deepening structural complementarity, shaped by contrasting yet mutually reinforcing economic strengths. Korea’s comparative advantage lies in high-tech, value-added manufacturing—especially in automobiles, semiconductors, and rechargeable batteries—while Canada provides upstream resource-based inputs such as coal, copper, and nickel that are essential to these sectors. This alignment has created an interdependent supply chain in which Canadian raw materials are embedded in Korea’s export-oriented production systems.
Such specialization has been catalyzed by global trends toward decarbonization, electrification, and digitalization. For instance, Korea’s rapid expansion in electric vehicle (EV) battery production has increased its reliance on secure sources of nickel and cobalt, positioning Canada as a key strategic partner. Conversely, Canada benefits from access to Korea’s manufacturing ecosystem and technology platforms, which complement its resource endowments.
However, this structural interdependence also introduces risks. Korea’s growing dependency on imported critical minerals, including those from Canada, exposes it to supply shocks, price volatility, and geopolitical disruptions. The post-pandemic commodity surge and disruptions triggered by the war in Ukraine underscore the fragility of resource-based value chains. For Canada, the limited integration into downstream Korean supply chains may constrain the full realization of value-added benefits.
Geopolitical dynamics further complicate the bilateral landscape. As both countries navigate an increasingly multipolar world—with U.S.–China rivalry, tightening export controls, and climate-driven trade policies—securing trusted trade partnerships becomes a strategic imperative. Canada’s Indo-Pacific Strategy, launched in 2022, explicitly identifies Korea as a priority partner in building resilient, diversified economic ties beyond China. Korea, for its part, seeks stable access to critical inputs to maintain its export competitiveness amid global uncertainties.
These complementarities and vulnerabilities present both a rationale and an urgency for a more institutionalized economic partnership. A shift from transactional trade to strategic collaboration is necessary, one that is anchored in long-term agreements, joint investments, and co-development of supply chain infrastructure. Addressing the asymmetries in upstream–downstream integration and reducing mutual exposure to global disruptions should be at the center of future bilateral policy coordination.
Policy Recommendations and Conclusion
Building upon the analysis of trade structure and supply chain linkages, this section outlines policy strategies to deepen Korea–Canada economic cooperation in a more resilient, equitable, and forward-looking direction.
Institutionalizing Intermediate Goods Cooperation
To mitigate supply-side vulnerabilities, Korea and Canada should formalize long-term agreements focused on critical minerals and intermediate goods. This could include government-backed procurement contracts, bilateral mineral stockpiling arrangements, and co-investment in extraction and logistics infrastructure. Drawing inspiration from Japan’s mineral security frameworks, such mechanisms would anchor bilateral trust and reduce exposure to third-country shocks.
Enhancing TiVA-Based Trade Governance
Given the structural importance of embedded Canadian value in Korean exports, both governments should collaborate to develop a bilateral “Value Chain Dashboard” that integrates HS-level trade data with TiVA coefficients. Such a tool would increase transparency, enable better industrial policy alignment, and allow real-time tracking of value-added flows. This would benefit not only large firms but also SMEs seeking to navigate cross-border production networks.
Leveraging Multilateral Platforms like CPTPP
Korea and Canada are both members of the CPTPP and participants in global digital economy frameworks. These platforms should be used not only to harmonize tariff schedules but also to align standards on cross-border data governance, ESG compliance, and AI regulation. Collaborative leadership in these areas could position both countries as norm-setters in the Indo-Pacific.
Coordinated Innovation in Clean Technology
To build future-ready industries, both governments should promote co-financed R&D programs in sectors such as hydrogen energy, next-generation batteries, smart mining, and low-carbon logistics. Canada’s research infrastructure and natural resource base, combined with Korea’s digital and manufacturing capabilities, present natural complementarities for joint innovation.
Strategic Dialogue for Economic Security
The current geopolitical landscape calls for regularized high-level dialogue. A Korea–Canada Strategic Economic Dialogue (SED) mechanism, modeled on the U.S.–Japan Economic Policy Consultative Committee, could facilitate coordination on critical technologies, dual-use items, cybersecurity, and supply chain risk management.
Conclusion
Ten years after the CKFTA came into effect, Korea and Canada have developed a trade relationship marked by structural complementarity and growing interdependence. Korea’s export-driven manufacturing base increasingly relies on Canadian resource inputs, while Canada benefits from downstream integration into high-value Asian markets. This paper has shown that beyond aggregate trade volumes, the composition and embedded value of bilateral exchanges warrant strategic attention.
To transition from reactive trade facilitation to long-term partnership, both countries must institutionalize cooperation in intermediate goods, value-added data governance, and industrial innovation. Policy coordination across bilateral and multilateral channels will be essential to address shared vulnerabilities and seize emerging opportunities in green growth, digital transformation, and economic security. By anchoring the Korea–Canada partnership in forward-looking governance structures, both nations can enhance their resilience and influence in an increasingly fragmented global economy.
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