[NEWS ANALYSIS] 'RCEP could be a boon to export-reliant Korea'

Carmakers, steelmakers to benefit, but competition with Japan to be fiercer

By Lee Kyung-min

The newly signed Regional Comprehensive Economic Partnership (RCEP), a tariff-removing trade agreement among 15 countries, will provide an impetus for the much-awaited economic recovery for export-reliant Korea, experts said Monday.

Yet caution is needed because this may not be all good news, as competition is certain to become fiercer between Korea and Japan, inevitably bringing about a price war to sharpen their respective competitive edge in the new, large market, they warned.

Most of Korea's key growth driver industries ― notably carmakers and steelmakers ― will be granted substantial growth opportunities, with the impact set to extend further to benefit other key industries such as petrochemical firms, equipment and facilities builders and consumer goods makers.

Beside large firms, further aggressive global market expansion will be possible for small- and medium-sized enterprises (SMEs) as well as budding tech firms such as online games and filmmakers.

Also included will be entertainment industries driven by a growing fascination with Korean pop culture, backed further by strengthened intellectual property rules including lower barriers to foreign equity investments.

Yet concerns linger over rapid polarization of growth among SMEs, dividing firms based on whether they reorient business plans to target overseas markets in time. This is why continued monitoring is needed to protect local makers of cheap consumer goods certain to lose out to their global counterparts.

Also to be bolstered is the New Southern Policy, a key economic and diplomatic drive under the Moon Jae-in administration defined as diversifying trade partners to Southeast Asian countries to cut the country's reliance on China.

This is because the new agreement was signed by the 10 member countries of the Association of Southeast Asian Nations (ASEAN) including observer nation East Timor.

Non-ASEAN countries that signed the RCEP are China, Japan, Australia and New Zealand.

The RCEP will create an economic bloc with a market accounting for a third of the global population (2.2 billion) and GDP ($26.2 trillion). It will account for 28 percent of all global trade.

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The competitiveness of Korean carmakers and car parts manufacturers will increase significantly thanks to the mega trade deal, whereby Indonesia, Thailand and the Philippines will remove tariffs on Korean-made seatbelts, airbags and steering wheels.

The business prospects of car parts manufacturers partnered with Hyundai Motor are likely to improve since the Korean automotive giant is building an assembly line in Indonesia which no longer imposes a tariff of up to 40 percent on components.

The steel industry will have tariffs of between 5 percent and 20 percent removed, facilitating growth in the RCEP countries accounting for about half of Korean-made steel products' overseas trade.

According to the Korea Iron & Steel Association, Korea's exports of steel to RCEP countries stood at $12.9 billion (11.6 trillion won) in 2019, accounting for 47.8 percent of the total. Korea's imports from the countries by contrast were $12 billion, accounting for 81.8 percent of the total.

Makers of synthetic resins, plastics, tires and other petrochemical goods and equipment will see their tariffs gone.

A tariff of up to 30 percent imposed on electronic and home appliances will be removed, lowering prices on Korean washing machines and refrigerators. Korean-made air conditioners will be sold without tariffs of up to 25 percent.

Relevant rules will also be eased for the gaming industry. The Philippines will allow a 100 percent foreign equity investment in its local gaming industry, while raising the ceiling of the maximum amount to up to 51 percent for producers of music, animated films and TV programs.

Yet Korean firms will need to reposition themselves in the larger context mindful of a heated competition with their Japanese counterparts, according to Moon Jong-chol, a research fellow at the Korea Institute for Industrial Economics and Trade (KIET).

"A market opened to a greater degree does not necessarily mean that all Korean firms will benefit in a uniform manner. Tariffs may be gone, but there will be other challenges both expected and unforeseen, mostly involving product quality and price," he said.

Polarization

The Korea Chamber of Commerce and Industry (KCCI), Federation of Korean Industries (FKI) and Korea Enterprises Federation (KEF) representing major businesses welcomed the decision.

"The RCEP will see the expansion of the new trade bloc and lay the groundwork for local industries in the Asia-Pacific region to thrive," the KCCI said in a statement.

Similarly, the FKI said in a statement: "The RCEP will provide the country with the momentum for economic recovery amid the longer-than-expected pandemic."

But SMEs without resources or personnel to develop overseas business plans will be left out of the much-touted agreement, according to Seoul National University economist Kim So-young.

"Many small businesses have been suffering due to the pandemic-triggered economic meltdown, and their difficulty will become more pronounced once the multilateral deal begins to take effect. The government support will be crucial not to neglect them in the process," he said.

A tailored yet drastic approach is needed to determine whether the agricultural industry known to struggle in the global market should be sustained in a manner that is not at all productive, Korea Development Institute (KDI) researcher Song Yeong-kwan said.

"The government spending to simply keep the industry afloat is an increasing burden and an inefficient use of taxpayers' money. It should identify measures that can improve the effective allocation of state resources by removing hefty investments in the sector while guaranteeing a basic income to industry workers," he said.