National Security Office Signs Defense Mutual Procurement Agreement This Year
Exemption from Export Disadvantages to the U.S. for Warships, Ammunition, Missiles
May Demand Cancellation of Offset Trade if Trump Is Re-elected
The government has decided to sign the Reciprocal Defense Procurement Agreement (RDP-A) with the United States. It is referred to as a 'Free Trade Agreement (FTA)' in the defense industry sector. Experts expect it to have a significant effect on defense exports.
According to the Ministry of National Defense on the 22nd, the National Security Office decided at the defense export strategy evaluation meeting chaired by Second Vice Minister In Seong-hwan the day before to conclude the RDP-A within this year. Once the agreement is signed, domestic defense companies will be exempt from disadvantages such as price penalties or tax impositions when exporting weapons to the U.S. The government also established a policy to increase financial support and reorganize the domestic defense industry to focus on exports. The amendment to the Export-Import Bank Act (Su-eun Act), which raises the statutory capital limit of the Korea Export-Import Bank from the current 15 trillion won to 25 trillion won, passed the National Assembly’s Planning and Finance Committee’s Economic and Fiscal Subcommittee the day before. Until now, due to a lack of lending capacity, there have been difficulties in providing financial support for the second contract of weapon exports to Poland, but this is expected to ease.
Jang Won-jun, a research fellow at the Growth Engine Industry Research Division of the Korea Institute for Industrial Economics and Trade, said, "The signing of the Korea-U.S. RDP-A will be an opportunity to shift from a domestic market to an export industry," adding, "Entry into shipbuilding, ammunition, and missile sectors is anticipated." Kim Jong-ha, a professor in the Department of Political Communication and Defense Policy at Hannam University, said, "Small and medium-sized domestic weapon system parts manufacturers can grow, and the U.S. will have an opportunity to stably expand its parts supply chain."
However, there are concerns that if former President Trump succeeds in re-election, he might eliminate offset trade citing the RDP-A agreement. Offset trade is a type of trade where, when purchasing weapons or equipment, the buyer receives certain counter-benefits such as the transfer of related knowledge or technology from the contractor, or exports of domestically produced weapons, equipment, or parts.
Yang Moon-hwan, head of the Defense Export Division at the Korea Defense Industry Promotion Association, said, "Domestic defense companies have grown through offset trade, but the U.S. side might propose abolishing this system."
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