Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
World's largest trade bloc expected to become boon for Korea amid pandemic, trade feud
By Yi Whan-woo
RCEP results in de facto FTA with Japan, opens doors with ASEAN wider
By Yi Whan-woo
It took almost 10 years for the world's largest trade pact ― the Regional Comprehensive Economic Partnership (RCEP) ― to take effect in Korea, Feb. 1, after the country under the then-incumbent Lee Myung-bak administration began to consider joining a multinational trade bloc led by either the United States or China, or both.
The global trading environment has changed so much since then, with the COVID-19 crisis, deepening U.S.-China conflict, disrupted supply chains, China's steep economic slowdown, lingering Trumpism and other risks that were unforeseeable in the past decade. All of these factors leave people questioning whether Korea can benefit from the RCEP as intended originally.
The question additionally sums up risks associated with China and Japan, both participating countries of the 15-member RCEP that each have weaponized trade against Korea over bilateral diplomatic conflicts in recent years.
Plus, India decided to stay out of the RCEP after taking into account its trade deficit with the founding member nations, therefore downscaling the possible impact the economic giant could have had on the trading bloc.
President Moon Jae-in waves to leaders of member states of the Regional Comprehensive Economic Partnership (RCEP), as Trade Minister Yoo Myung-hee stands next to him during the signing of the 15-member RCEP at a virtual meeting in Cheong Wa Dae on Nov. 15, 2020. Korea Times file
“Under the given circumstances, I'd say all these risks make RCEP more important than when it was first discussed, and that it can bring new opportunities for Korea's export-driven economy,” Kim Soo-dong, a research fellow at the Trade Policy Division of the Korea Institute for Industrial Economics and Trade (KIET) told The Korea Times.
He said the aforementioned risks are related to protectionism and isolationism in general and they can be tackled through multilateralism embraced by RCEP from its early stage.
“The RCEP is especially on the same page as Korea, which has adopted an open-door policy,” the KIET researcher said.
Kim Bong-man, head of the International Affairs Division at the Federation of Korean Industries (FKI), said the RCEP can especially work as a “safety lock” against supply chain bottlenecks in the prolonged COVID-19 pandemic.
“The RCEP will broaden our horizons in overseas markets, and will accordingly leave us more options to choose from in terms of supply,” he said.
He emphasized that the 15 RCEP member nations, including 10 ASEAN states plus Australia and New Zealand, collectively account for 29.6 percent of the world population with 2.25 billion people. Their combined GDP of $26.1 trillion accounts for 28.4 percent of the global GDP and their combined trade volume of $10.5 trillion accounts for 27.9 percent.
The figures of the RCEP led by China are higher than those of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), another mega-sized multilateral trade bloc renamed from U.S.-led TPP after was TPP was thrown into limbo during the Donald Trump administration
Korea is not a member of CPTPP, which took effect in 2018, though it is currently in talks with involved parties to join.
Korea had already signed separate free trade agreements (FTAs) on bilateral or multilateral levels with all RCEP members except for Japan. And with the RCEP, Korea will see tariffs lowered over the next 20 years by up to 94 percent in trade with ASEAN, 91 percent for China, Australia and New Zealand and 83 percent for Japan.
The ultimate goal of non-tariff barriers to trade will be largely made possible through the common rule of origin, a set of criteria to determine which products should be eligible for duty free or preferential treatment. The rule of origin can then facilitate supply chain management.
“You can see how the rules of origin will be simplified under the RCEP, and this will be effective for the member states to hedge against supply chain risks that are not likely to let up for the time being,” the FKI economist said.
President Park Geun-hye, second from left, and leaders from China, Japan and Malaysia link arms to symbolize their joint efforts to speed up talks on the Regional Comprehensive Economic Partnership (RCEP) in November 2015. Korea Times file
FTA among Korea, China, Japan
Concerning East Asia, the RCEP is noted for being the first FTA between Korea, China and Japan.
The Atlantic Council, a U.S think tank, views the three neighbors correspondingly “may gain far more from this agreement than ASEAN through the new linkages encouraged by RCEP's tariff reductions.”
Seoul analysts viewed such favorable trade conditions can help lessen the possibility of economic retaliation taken against Korea by China over the deployment of U.S. THAAD missile batteries here and by Japan over diplomatic rows concerning historical issues.
“I am not saying RCEP will make the possibly go away completely, considering the retaliatory measures were taken in spite of the breach of the World Trade Organization (WTO) regulations,” the FKI analyst said. “Still, the RCEP will bring optimism for a better future in trade among the three nations.”
Lee Yu-jn, a manager at the Center for Trade Studies and Cooperation of the Korea International Trade Association (KITA), speculated the RCEP will serve virtually as an FTA between Korea and Japan and help improve their bilateral trade friction.
The two governments, however, excluded their respective sensitive items from free trade lists. The Korean side will also maintain its import ban on Japanese fisheries over lingering public fears linked to the 2011 Fukushima nuclear disaster and sea contamination in the region.
Concerning Korea's record trade deficit of $4.89 billion in January, the experts viewed that as a matter of rising energy prices beyond RCEP's influence and concluded the trade bloc will hardly result in settling the crisis.
By region, multiple reports showed Korea will benefit increasingly in trade with ASEAN because the RCEP opens the door wider in the service sector and electronic commerce.
ASEAN as a whole has emerged as Korea's second-largest trading partner after China, thanks to their FTA that took effect in June 2007 as well as bilateral FTAs with five ASEAN members ― Cambodia, Malaysia, the Philippines, Singapore and Vietnam.
The RCEP further leaves the door open for Korean pop culture which is enjoying expanding popularity in the region.