Expecting Benefits for Steel and Auto Parts... ASEAN Export Market 'Blooms' with RCEP Agreement

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyewon] South Korea signed the Regional Comprehensive Economic Partnership (RCEP), the world's largest free trade agreement (FTA), on the 15th, opening up expanded export market opportunities for Korean export companies in sectors such as steel and automobiles.

According to trade authorities on the day, it is expected that key export items such as steel and automobile parts will benefit from RCEP. Exports in petrochemicals, machinery, and consumer goods have also expanded due to significantly lowered tariff barriers.

The 15 RCEP member countries, including the 10 ASEAN nations, South Korea, China, Japan, Australia, and New Zealand, have a combined population of 2.26 billion, accounting for 30% of the global population. Their nominal Gross Domestic Product (GDP) is $26.3 trillion, and trade volume is $5.4 trillion, representing about one-third of the world’s total. This is larger than the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which involves 11 countries. The launch of this mega FTA is expected to contribute to expanding South Korea’s export markets and diversifying trade structures. Last year, South Korea’s exports to RCEP countries amounted to $269 billion, accounting for half of the country’s total exports.

In particular, the RCEP region is a crucial trading partner, accounting for more than half of South Korea’s global steel trade. According to the Korea Iron & Steel Association, last year’s exports to RCEP countries reached $12.9 billion, representing 47.8% of total steel exports worldwide. Imports were $12 billion, accounting for 81.8% of total imports. Through RCEP, tariffs on steel products such as billets and shaped steel (5%), steel pipes (20%), and galvanized steel sheets (10%) have been eliminated. The Korea Iron & Steel Association immediately issued a statement expressing expectations that the RCEP signing will significantly contribute to strengthening export competitiveness through enhanced regional liberalization and to boosting the competitiveness of South Korea’s steel industry.

Countries such as Indonesia, the Philippines, and Thailand have eliminated tariffs on automobile parts including seat belts, airbags, and wheels. Indonesia, which previously imposed tariffs of up to 40% on automobile parts, has abolished these tariffs. With Hyundai Motor currently constructing a complete vehicle factory in Indonesia, the removal of tariffs on automobile parts is expected to increase exports from Korean parts manufacturers. For complete vehicles, some countries have removed tariffs on trucks and certain small cars.

Additional tariff eliminations have been made in petrochemical sectors such as synthetic resins, plastic pipes, and tires, as well as in machinery sectors including ball bearings, machine parts, and textile machinery. Among electrical and electronic products, tariffs on refrigerators and washing machines, which were up to 30% in some countries, and air conditioners, which were up to 25%, have been removed. Small and medium-sized enterprise items such as textiles and promising post-COVID products like medical hygiene supplies have also secured additional market openings, broadening export opportunities.

Last year, South Korea’s exports to ASEAN increased 2.5 times compared to when the Korea-ASEAN FTA came into effect in 2007. A trade official stated, "Although tariff rates and detailed concession levels vary by country, the RCEP agreement allows us to secure a larger ASEAN market."

Although RCEP is not a bilateral agreement, it effectively establishes an FTA between South Korea and Japan for the first time. The tariff elimination rate between South Korea and Japan under RCEP is 83% by the number of items for both countries. However, by import value, South Korea opens 76% of its market, while Japan opens 78%, meaning Japan has opened its market 2 percentage points more than South Korea.

South Korea excluded sensitive major items such as complete vehicles and machinery from concessions. For items that are opened, a "non-linear tariff elimination" method is applied, where tariffs are eliminated over 10 to 20 years or maintained for a long period before gradual reduction, providing protective measures. A trade official explained, "Through consultations with industry, sensitive items were excluded from concessions. For materials, parts, and equipment items that have very high technological levels and high dependence on Japan but need to be fostered domestically, the market is either not opened at all or opened with long-term, non-linear protection for over 20 years to secure maximum protection periods." The government believes that since buffer measures have been put in place to absorb shocks from market opening, the damage to domestic industries will not be significant.

This content was produced with the assistance of AI translation services.