Korea Chair Explains - South Korea and the RCEP
KOREA CHAIR EXPLAINS • 16/11/2021
By Ramon Pacheco Pardo
On Sunday, South Korea joined fourteen other Asia-Pacific countries in signing the Regional Comprehensive Economic Partnership (RCEP). By some measures, this is the biggest regional trade agreement in the world, accounting for over 30 percent of world GDP (PPP) and 30 percent of the world’s population. RCEP negotiations were formally launched in 2012, which shows that the negotiation process has not been easy. But once the agreement enters into force, it will slash tariffs and unify rules of origin – thus strengthening Asia-Pacific economic integration. The expectation is that South Korea and Japan, the two largest exporters of high-tech goods in the region, will be among the major beneficiaries of the agreement.
What are RCEP’s economic implications?
Arguably, for South Korea the biggest economic implication of RCEP is that this is its first-ever FTA with Japan. South Korea already has FTAs signed and in effect with all the other members of RCEP. In some cases, these FTAs are substantially more comprehensive than RCEP (e.g., Australia, Singapore or Vietnam). In the past, however, South Korea had been reluctant to sign an FTA with Japan due to concerns about competition in high-tech sectors. But this concern has subsided in recent years as South Korean firms now often compete head-to-head with their Japanese counterparts, and there are also complementarities between firms in both countries.
Another, closely related economic implication is that South Korea, China and Japan have signed their first-ever trilateral FTA – albeit as part of a broader agreement. The three of them have been negotiating their own trilateral FTA since 2012, but so far there has been no indication that a purely trilateral deal could be signed any time soon. South Korea and China have had an FTA in effect since 2015 – albeit a rather shallow deal – but China and Japan have no FTA in place. Thus, RCEP is expected to support trade and supply chain integration in Northeast Asia. For South Korea, the old narrative of being ‘sandwiched’ between ‘low-cost China’ and ‘high-tech Japan’ does not apply anymore.
One final key economic implication of the agreement is that South Korean goods exporters will get better access to growing Southeast Asian consumer markets. RCEP will reduce tariffs and other barriers to trade to a significantly larger extent than the 2007 ASEAN-South Korea FTA. As part of his New Southern Policy strategy, President Moon Jae-in had sought to strengthen trade links with the countries in the region. RCEP is a significant step in this direction. Furthermore, even though RCEP is shallow when compared to CPTPP and other FTAs, it is a ‘living agreement’ and there is room for deepening in the future. This would further facilitate South Korean exports to ASEAN.
What are RCEP’s geopolitical implications?
From a South Korean point of view, RCEP helps Seoul to remain part of the latest Asia-Pacific geopolitical dynamics. In South Korea, there has been a debate regarding whether to join CPTPP for both economic and political reasons. By being part of RCEP from the beginning, the South Korean government can address the concerns of those policy-makers and businesspeople who would have liked South Korea to be a founding member of CPTPP. It should be noted that South Korea, in common with most - if not all - RCEP members, does not see this agreement as a China-led initiative. So there is no concern in Seoul regarding potentially being seen as ‘siding’ with China by signing RCEP, while not having signed CPTPP.
In addition, RCEP supports South Korea’s push to diversify and expand its economic links. This is a geopolitical goal that can be traced back to at least 2003, when the Roo Moo-hyun government came up with an FTA roadmap. It has not changed ever since, regardless of the president in power. And it is linked to also diversifying diplomatic partners. The Moon government has clearly identified Southeast Asia as a key region in this diversification strategy. RCEP is thus expected to boost not only economic, but also diplomatic links with the region.