[The Editors' Verdict] The Significance of RCEP Launch and CPTPP Accession

The Regional Comprehensive Economic Partnership (RCEP), the world's largest free trade agreement (FTA) involving 15 countries?including the 10 ASEAN member states, South Korea, China, Japan, Australia, and New Zealand?was signed on the 15th.

This mega-FTA, accounting for 30% of the world's gross domestic product (GDP), has come to fruition after eight years of negotiations. The outcome was anticipated since the RCEP summit held in Bangkok, Thailand, last November declared the agreement on all chapters. Although it is regrettable that India did not join during the detailed liberalization agreement process over the past year, RCEP is expected to provide new momentum amid a significant contraction in trade caused by new protectionism and the spread of COVID-19.

RCEP has raised the tariff elimination rate of the Korea-ASEAN FTA, which came into effect in 2007 (ranging from 79.1% to 89.4%), to between 91.9% and 94.5% by country. For example, Indonesia, which imposed tariffs of up to 40% on auto parts, has agreed to eliminate them, likely increasing auto parts exports. South Korea has already signed seven FTAs with RCEP member countries, including ASEAN, India, Singapore, China, Australia, Vietnam, and New Zealand, but different rules of origin apply to each FTA, causing significant administrative burdens and costs for companies. The establishment of unified rules of origin is expected to greatly reduce these burdens and increase FTA utilization. Additionally, since materials procured and processed throughout RCEP member countries will be recognized for material accumulation, the formation of regional production value chains will be activated, strengthening links with regional industries and enhancing corporate competitiveness.

The fact that this is South Korea's first-ever FTA with Japan is also highly significant. For Japan, key sensitive items such as finished cars and machinery, as well as materials, parts, and equipment requiring nurturing, are excluded from liberalization or will have tariffs reduced over a long period of more than 20 years, so no significant short-term damage is expected. The tariff elimination rate between South Korea and Japan (83% by item count) is lower than that with ASEAN, so the effect of opening the Japanese market is not large. However, it could serve as an opportunity to improve the strained bilateral relations caused by Japan's export restrictions. Attention is also focused on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which came into effect in 2018, immediately after the RCEP signing.

Although U.S. President-elect Joe Biden has not directly mentioned rejoining the CPTPP, he has expressed a desire to check China by emphasizing that "the United States must be able to set the rules." Currently, the CPTPP is led by Japan and includes 11 countries without the United States. Seven of these countries (Japan, Australia, New Zealand, Singapore, Vietnam, Malaysia, and Brunei), excluding Canada, Mexico, Chile, and Peru, are also members of RCEP. The CPTPP offers a higher level of liberalization in goods (95-100%) and investment rules than RCEP and covers e-commerce, intellectual property rights, government procurement, as well as state-owned enterprises, labor, and environmental issues. Biden's election increases the possibility of U.S. reentry.

The issue lies with South Korea. If the U.S. rejoins the CPTPP, South Korea's need to join will become even greater. Although South Korea has already signed FTAs with CPTPP members except Japan and Mexico, like RCEP, the rules of origin apply by accumulating regional value added, so non-membership would cause relative disadvantages. From South Korea's perspective, there is no reason to hesitate by linking RCEP and CPTPP membership to U.S.-China conflicts.

Instead of 'strategic ambiguity,' South Korea must emphasize firm principles on free trade and market economy. From now on, it should coordinate with the United States to join the CPTPP under fair conditions.

Professor Insoo Kang, Department of Economics, Sookmyung Women's University