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South Korean President Moon Jae-in and Trade Minister Yoo Myung-hee take part in the signing ceremony for the Regional Comprehensive Economic Partnership (RCEP) held via teleconference on Nov. 15. (Yonhap News)

The Regional Comprehensive Economic Partnership (RCEP), which represents the world’s largest-ever free trade agreement (FTA) with 15 countries participating (including South Korea, China, Japan, and ASEAN members), was finally concluded after eight years of negotiations. The conclusion of what amounts to new South Korea-Japan and China-Japan FTAs will mutually open markets for industrial and agricultural products, services, and investment. For now, the agreement is to be launched and go into effect without India’s participation. The South Korean government explained, “To ensure that South Korea’s adverse trade situation with Japan does not increase, our two sides have agreed to openness on 83% of all items.”

“To protect South Korean industries, we have excluded sensitive items such as automobiles and machinery from the tariff concessions, while establishing long-term 10- to 20-year schedules for abolishing import duties on other Japanese products entering the South Korean market,” it added.

The final signing of the agreement came at a fourth RCEP summit held via teleconference on Nov. 15 by the leaders of 15 countries, including South Korean President Moon Jae-in as well as the heads of state of the 10 ASEAN members (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam), China, Japan, Australia, and New Zealand. The agreement spans 15,000 pages and includes 20 total chapters on areas including goods, services, investment, and place of origin, as well as various annexes.

The RCEP represents the world’s largest trading bloc, accounting for roughly 30% of the world in terms of regional trade scale (US$5.4 trillion), GDP (US$26.3 trillion), and population (2.26 billion). Its scale exceeds those of the United States–Mexico–Canada Agreement (USMCA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP, 11 countries). India was absent from the agreement’s conclusion and signing after declaring last year that it would not be participating. In terms of economic blocs, South Korea’s US$269 billion in exports to RCEP members (as of 2019; representing 50% of all exports) far outweighs its exports to UMSCA members (US$89.8 billion or CPTPP members (US$126 billion). The South Korean government said, “We’re expecting this to contribute significantly to expanding our export markets and diversifying our trade structure going forward.”

The area where the RCEP’s conclusion stands to most clearly impact South Korean industry and businesses is its effective status as the first-ever FTA concluded between South Korea and Japan. Japan ranks first among countries with which South Korea has suffered a chronic trade deficit (US$19.163 billion in 2019). The South Korean items subject to market opening within the RCEP framework (including opening postponements and exceptions) encompass a total of 12,243 industrial and farming/fishing products (roughly 80% industrial). For Japan, the number is 9,091. At 83%, South Korea and Japan have pledged tariff concessions (abolitions to take place immediately or incrementally over up to 20 years) on identical proportions of these total items. A breakdown of South Korean tariff concessions for individual countries participating in the RCEP shows the same levels applied with the 10 ASEAN countries; in the cases of other countries such as Japan and China, these common measures are to be considered standard, but with differing levels of concessions in consideration of the items considered sensitive with respect to that country. This approach was based on a process of increasing and removing items and timeframes for tariff abolition in a give-and-take fashion between individual countries.

In exchange for South Korea not opening its automobile market to Japan, Japan did not apply openness to potential South Korean agricultural exports such as kimchi and bell peppers. A South Korean administration official explained, “We were successful in insisting to Japan that because our adverse trade situation with Japan is so severe and Japan is applying its export controls, Japan would need to make more tariff concessions in terms of import dollar value.”

“To protect our industries, we excluded sensitive items such as automobiles and machinery from tariff exemptions, while using methods such as long-term, incremental tariff abolition periods [of 10, 15, and 20 years] for items where the South Korean market was being opened or so-called ‘nonlinear abolition schedules’ in which the current tariff is kept in place for a long period before being drastically lowered later on to provide a complete concession,” the official said, implying that a balance had been struck in terms of gains.

An examination of the tariff abolition levels between the two sides showed Japan two percentage points higher than South Korea by a margin of 78% to 76%, with Japan offering 2.4 percentage points more in tariff abolitions for industrial products alone (94.1% to 91.7%) in terms of the number of items. In comparison with Japan, South Korea had a higher percentage of long-term abolitions of 10 or more years (41.6% for South Korea, 17.1% for Japan), with far greater use of 20-year abolition schedules (455 for South Korea, two for Japan) and nonlinear abolition schedules (105 for South Korea, none for Japan).

The conclusion of the RCEP also creates an effective FTA between China and Japan. The two sides pledged to open markets for 86% of all trade items between them — a slightly higher rate of liberalization than the market opening between South Korea and Japan. With an FTA already in effect between South Korea and Japan, South Korea’s businesses and industries have been focusing on the export competition to emerge in the wake of the three markets opening. The South Korean government has held 16 rounds of negotiations since 2013 toward the conclusion of an official trilateral FTA with China and Japan.

“Since South Korea, China, and Japan are already discussing an FTA, we agreed to conclude agreements at a somewhat lower level with this RCEP framework, leaving out items considered sensitive among the three sides,” a South Korean government official said.

In comparison with the South Korea-ASEAN FTA that entered effect in 2007, the RCEP agreement includes over 1,000 more items for tariff abolition, raising the level of market openness to the 92-94.5% range in terms of number of items; the level of market openness between South Korea, China, and Japan is to be lower than that.

Some of the items where South Korean industries could reap export rewards as the RCEP participants open their markets include cars, trucks, automobile parts and engines, steel products, synthetic resins, tires, ball bearings, machine parts, refrigerators, washing machines, cotton yarn, clothing, cleaning products, apples, pears, strawberries, beer, green tea, dried laver, canned seafood, and frozen yellowfin tuna. Most of them have current tariff rates in the range of 5-40%.

In contrast, the major farming and fishing products that South Korea is opening its markets to (with current tariff rates in the 30-50% range) are tropical fruits (including durian, papayas, guavas, mangosteens, and lemons) and beverages (including beer and pineapple juice). In most cases, a long-term schedule of over 10 years was applied for abolition to a 0% tariff rate. To protect farming, fishing, and forestry items, key sensitive items (including rice, garlic, red peppers, onions, and frozen pollack) were excluded from concessions, as were sensitive items that account for large importation volumes (including pineapples, frozen shrimp, frozen squid, fresh sea bream, and fresh amberjack).

“We have reduced the damage to South Korean farming and fishing products by either minimizing the tariff reduction rate for some of the items being opened or by ensuring a sufficiently long tariff abolition schedule,” the South Korean government explained.

The RCEP is poised to enter effect in 60 days following parliamentary ratification and approval procedures by six of the 10 ASEAN countries and three of the five non-ASEAN countries. It will not enter effect for any country that does not ratify it.

By Cho Kye-wan, staff reporter

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