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Free trade deal

S.Korea, Japan ink first free trade deal via 15-country trade bloc

Nov 16, 2020 (Gmt+09:00)

South Korea joined the world’s biggest free trade regime on Nov. 15 by signing a mulilateral FTA pact that covers 15 countries in the Asia-Pacific region, including Japan, marking its first free trade deal with the neighboring country.

The Regional Comprehensive Economic Partnership (RCEP), led by China, includes the 10 member countries of the Association of Southeast Asian Nations (ASEAN) plus Australia and New Zealand. South Korea already maintains bilateral FTAs with the other 13 members, but not yet Japan.

The new trade pact will represent 30% of global gross domestic product (GDP) worth $26.2 trillion, with a combined population of 2.2 billion. India, an economic power in the region, has not participated in the partnership. 

Under the new multilateral FTA, lowered trade barriers between South Korea and Japan are expected to increase their bilateral trade, but some Korean firms, such as manufacturers of parts, materials and equipment, will likely take a hit. Given Japanese firms’ advantage over their Korean counterparts in the materials and intermediary goods sector, they are likely to elbow out their Korean rivals in the domestic market.

The RCEP covers most of the parts and materials used in automobiles and electronics goods, including air bags and automotive electronics. Machinery and completed vehicles are excluded from the trade deal.

To minimize any negative impact of the new multilateral trade agreement on the local economy, South Korea has come up with protective measures such as a tariff reprieve on key products, said Seoul's Ministry of Trade, Industry and Energy (MOTIE).

“To protect domestic companies, we agreed to gradual tariff lifting on key items in the materials, parts and equipment industries over a period of 10 to 15 years,” said a MOTIE source.


The ministry said that the RCEP will be a winning deal for South Korea, noting that Japan will abolish tariffs on 94% of imports from South Korea, compared to 92% of Japanese exports to Korea.

But under the new trade deal, South Korea is expected to deepen its dependence on imports of Japanese materials and intermediary goods with a technological edge over Korean products, said an industry source.

“Despite a reprieve of more than 10 years, South Korea’s dependence on Japanese goods cannot help but rise,” the source told The Korea Economic Daily.

In the ASEAN market, Korean exporters of steel, textile and auto parts are expected to increase their share thanks to the removal of tariffs. ASEAN accounts for $95.1 billion or 17.5% of South Korean exports last year.

Healthcare and sanitary product makers are also tipped as winners of the new trade pact in the Southeast Asian market, whereas the Korean agriculture industry will see little impact from the trade deal, given the overlapping scope of businesses covered by the RCEP and bilateral FTAs among its member countries.

The RCEP could rival a similar multilateral trade pact in the Asia-Pacific region such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) that encompasses Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.  The US pulled out of the trans-Pacific pact in 2017 in favor of bilateral trading. South Korea does not belong to the CPTPP.

In response to a speculation that Korea's participation in the China-led new FTA could cause trade conflicts with the US, a senior presidential office source said: “the RCEP is not against the CPTPP but complementary.”

The RCEP is expected to take one to two years to take effect as it needs to be ratified by each member country's parliament. 

Write to Young-Yeon Kang and Kyung-Mok Noh at

Yeonhee Kim edited this article.

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