RCEP Signed After 8 Years... Enforcement Expected Next Year

30% of Global Market Size FTA Effect
Enforced After Ratification by Each Country
Effect Expected in Second Half of Next Year
Chinese Market May Compete with Japan

President Moon Jae-in attended the signing ceremony of the Regional Comprehensive Economic Partnership (RCEP), the world's largest free trade agreement (FTA), held at the Blue House on the 15th. He applauded as the signed document was handed over to Lim Jock Hoi, Secretary-General of ASEAN. (Photo by Yonhap News)

[Asia Economy Reporter Moon Chaeseok] South Korea signed the Regional Comprehensive Economic Partnership (RCEP), which includes 15 countries such as China, Japan, and ASEAN (Association of Southeast Asian Nations), after 8 years of negotiations, but concerns remain that it will take a long time before it comes into effect. Attention is focused on the ratification by each country's parliament and the enforcement procedures going forward.

On the 15th, the leaders of the 15 participating countries in the RCEP agreement, including President Moon Jae-in, the 10 ASEAN countries, China, Japan, New Zealand, and Australia, attended the RCEP summit and agreement signing ceremony held via video conference. With this RCEP agreement signing, South Korea will benefit from the largest free trade agreement (FTA) covering 30% of the world's economy. The combined gross domestic product (GDP) of the RCEP participating countries amounts to $26.3 trillion, with a population of 2.26 billion and trade volume reaching $5.4 trillion.

By signing an FTA with Japan for the first time in history, South Korea now has FTAs with the world's top five economic powers: the United States, China, Japan, Germany, and India.

In the Southeast Asian market, it is expected that South Korean automobile parts and steel companies will benefit. Indonesia, the Philippines, Thailand, and others have abolished tariffs on automobile parts such as seat belts, airbags, and wheels. Indonesia has decided to eliminate tariffs of up to 40% previously imposed on automobile parts. In the steel sector, tariffs on steel products such as billets and shaped steel (5%), steel pipes (20%), and galvanized steel sheets (10%) have been abolished.

Ratification by each country required for enforcement... Earliest in the second half of next year

It is expected that RCEP will only take full effect in the second half of next year at the earliest, as ratification by each country is required. Once six of the ten ASEAN countries and three of the five non-ASEAN countries submit their ratification documents to the secretariat, the agreement will come into force 60 days later.

There is a possibility of backlash from relatively smaller economies within ASEAN such as Myanmar, Cambodia, and Laos, who may argue that they have conceded too much market access to developed countries.

The government expects to submit the ratification documents to the secretariat in the first half of next year and have the agreement come into effect in the second half, provided the parliamentary schedule is not delayed.

However, since the next presidential and local elections will be held simultaneously in March 2022, it is difficult to predict what variables may arise. The government has expressed a fundamental position that there are no major disagreements between ruling and opposition parties regarding RCEP, so the ratification process can proceed swiftly.

Will a Korea-China-Japan FTA also be pursued?

President Moon Jae-in delivering a speech at the Korea-China-Japan Business Summit held at the Century City Expo Center in Chengdu, Sichuan Province, on December 24 last year (local time). (Photo by Yonhap News)

With the conclusion of RCEP, there is renewed interest in whether Korea-China-Japan FTA negotiations, which resumed last December, will progress. There are concerns that only Japan, which previously did not have an FTA with Korea and China, will benefit from the RCEP signing.

By signing RCEP with Japan this time, 80% of automobile parts such as airbags have become subject to tariff elimination. China has also increased the tariff elimination rate on Japanese products from 8% to 86%. China plans to abolish tariffs on Japanese manufactured goods within 10 to 20 years and reduce the 25% tariff imposed on imported cars.

In the worst-case scenario, Korean companies may have to compete with Japan's specialty high-tech (high-quality) materials and parts in the Chinese market. China is the largest market, accounting for one-quarter of South Korea's exports. An official from the Ministry of Trade, Industry and Energy said, "(With the RCEP signing) China and Japan will also effectively have FTAs with each other," adding, "If a consensus on economic benefits among Korea, China, and Japan is formed, higher levels of market openness than the current RCEP signing can be achieved, and a Korea-China-Japan FTA can be sufficiently discussed in the future."

India unlikely to participate until the end

Narendra Modi, Prime Minister of India. (Photo by Yonhap News)

India refused to sign RCEP citing the "trade deficit with China" as a reason. Some view the ultimate reason as geopolitical calculations.

India participates in the "Quad" (an informal security dialogue among four countries), a U.S.-led strategy to contain China, along with Japan and Australia. While Japan and Australia, members of the Quad, joined RCEP, India is in serious border disputes with China, making its situation different.

An official from the Ministry of Trade, Industry and Energy stated, "Since Prime Minister Narendra Modi is considering strategies to increase the added value of domestically produced goods, India may decide to participate in RCEP in the future, but it is difficult to say how likely that is."

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