Negotiations for the Regional Comprehensive Economic Partnership, launched in 2012, involve 10 ASEAN members and six Asia-Pacific countries: Korea, Australia, China, India, Japan and New Zealand. On Wednesday last week, leaders of the 16 nations met in Singapore and agreed to finalize the trade deal in 2019.
If concluded, the RCEP is expected to create the world’s largest free trade area, comprising 49 percent of the world’s population and a combined gross domestic product of around $25 trillion, which accounts for 32 percent of global GDP.
Asia’s fourth-largest economy sees the pact as an opportunity to diversify its export destinations and better advance into the Indian market, which government and trade experts say is a “land of opportunity” at a time when a trade war is escalating between Korea’s two largest trade partners, the US and China.
“When the RCEP is concluded, Korea’s trade and investment base will be diversified into the key nations of Korea’s New Southern Policy, including ASEAN and India. The opportunities for Korean companies to jump into (the ASEAN and Indian markets) are expected to be expanded,” said Kim Young-man, chief of the Trade Ministry’s East Asia FTA negotiation division.
Currently, China and the US are the nation’s two largest trade partners, with 24.8 percent of the nation’s total export volume going to China last year and 11.9 percent to the US.
However, the recent trade conflicts between the two nations pose a risk to Korea because proposed changes to China’s currency and taxation policies may harm Korean exporters. The prolonged trade conflict could cut Korea’s economic growth 0.6 percentage point and cost 150,000 jobs, according to the Hyundai Research Institute.
In a survey of 300 Korean exporters conducted by the Korea Federation of Small and Medium Business, 52 percent of respondents said it was necessary to “diversify export destinations” to respond effectively to the trade war.
Park Chun-il, chief of the Korea International Trade Association’s commerce support division, sees the pact as a good chance for Korean enterprises to advance into India as well as into the ASEAN market. He pointed to India’s population of 1.3 billion and the abundant opportunities that represents.
“The pact is expected to (create the right conditions) for Korean companies to export their products and services to India, which still has low openness to Korea,” Park said.
Korea and India signed a Comprehensive Economic Partnership Agreement, a type of free trade agreement, in 2009. But even with that agreement in place, India remains less open than other nations and its rules of origin are stricter. The utilization of the trade pact by Korean companies is 67.5 percent, lower than Korea’s average utilization rate for FTAs, according to KITA.
On Tuesday last week, a day before the 16-nation summit, Korean Trade Minister Kim Hyun-chong met with Suresh Prabhu, India’s minister of commerce and industry. They agreed to accelerate economic cooperation between the two nations by operating direct flights between Incheon and Chennai and by establishing an industrial complex in India for Korean companies. They also agreed to work toward greater openness in the Indian market through the RCEP and CEPA.
Separately, during his stay in Singapore Kim also met with trade ministers from Indonesia and Malaysia to discuss ways to intensify economic cooperation.
According to the Korea Economic Research Institute, when the RCEP is concluded it can be expected to raise Korea’s GDP an annual average of 1.1 percent and to create an additional $1.1 billion worth of consumer welfare. It should also increase exports by an annual average of 3.8 percent and improve the current account balance by $28.7 billion.
“We found out that joining mega FTAs such as the RCEP positively contributes to the nation’s growth, welfare and trade especially amid growing protectionism driven by trade conflicts between the US and China,” said Chung Jae-won, a researcher at the Korea Economic Research Institute.
By Shin Ji-hye (firstname.lastname@example.org)