World’s largest free trade pact to come into force on New Year’s Day

Posted on : 2021-11-05 16:59 KST Modified on : 2021-11-05 16:59 KST
Participating countries account for nearly 30% of the world’s population and represent 30% of regional trade and global GDP
Leaders of RCEP nations gathered for the 2019 summit in Bangkok, Thailand, link hands for a photo. (AFP/Yonhap News)
Leaders of RCEP nations gathered for the 2019 summit in Bangkok, Thailand, link hands for a photo. (AFP/Yonhap News)

The Regional Comprehensive Economic Partnership (RCEP) is set to officially go into effect on Jan. 1 as the world’s largest free trade agreement, with its 15 members including South Korea, China, Japan and the countries of the Association of Southeast Asian Nations (ASEAN).

Analysts are expecting a gradual increase in export activities by South Korean companies as they take advantage of the lower tariff barriers. But the phased nature of the tariff abolitions and the presence of many items not subject to openness means the effects are unlikely to be immediately felt once the agreement takes effect.

On Tuesday, the governments of Australia and New Zealand announced their ratification of RCEP. According to the terms of the agreement, RCEP goes into effect within 60 days of at least six ASEAN members and at least three ASEAN non-members submitting their ratification documents to the ASEAN secretary-general, with the provisions applying first to countries that have submitted ratifications.

The conditions for the partnership to take effect were met when Australia and New Zealand completed their procedures after ratification was previously completed by China, Japan, Brunei, Cambodia, Laos, Singapore, Thailand, and Vietnam.

As for South Korea, ratification procedures are still underway in the National Assembly. The government is predicting that the RCEP will go into effect for it as of late January 2022.

“Since there aren’t any real objections in the National Assembly, we’re anticipating the ratification procedures should be completed without any problems,” the Ministry of Trade, Industry and Energy (MOTIE) said.

India also held negotiations on RCEP membership, but opted not to join due to concerns about a sharp rise in imports of Chinese-made industrial products as markets are opened, among other concerns.

Japan’s hopes that India might play a role in reigning in China failed to pan out. But the door was left open for India to join later on after the existing member countries agreed to allow it to take part as an “observer.”

In many respects, RCEP represents the world’s largest free trade agreement.

According to information from the MOTIE, the participating countries have a combined population of 2.26 billion people, or 29.9% of the world’s population. They also represent roughly 30% of both regional trade and global nominal gross domestic product.

In terms of regional trade scale, the countries in RCEP represent nearly double the US$2.9 trillion in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, known as CPTPP, which took effect in December 2018.

By entering the agreement, South Korea would enjoy the same benefits as it would from signing FTAs with the individual members. But as a free trade agreement, the RCEP adopts a relatively loose framework, with many items subject to tariff reduction on a gradual basis — and many others that are not subject to openness at all.

For instance, South Korea does not plan to open its automobile market to Japan, while Japan has not extended openness to agricultural products such as kimchi and bell peppers. This means that no discernable effects are likely to come in the short term once the agreement comes into force.

But the chances are high that rising exports and other clear positive effects will emerge for certain items in the intermediate to long term.

The South Korean government has named automobile parts and steel as areas where the benefits will be most pronounced, as tariff barriers for those items will be substantially lowered.

Specific examples include the abolition of tariffs in Indonesia, the Philippines, Thailand, and other countries for safety belts, airbags, wheels and other automobile parts. Duty-free exports will also become available for rebar and other steel products that had been subject to a 5% tariff rate, as well as steel pipes, which had been subject to a 20% tariff rate.

As of 2020, South Korean steel companies were exporting US$12.9 billion worth of items to RCEP member countries — roughly half of all global exports. On that basis, they can be expected to see a rise in export dollar value and improved profitability as the agreement takes effect.

By Kim Kyung-rak and Cho Ki-weon, staff reporters

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