The two countries have agreed to officially implement the deal by exchanging diplomatic letters in Beijing on Wednesday, a week after the South Korean parliament ratified the bill in the midst of political confrontation between rival parties.
The bills on FTAs with China, New Zealand and Vietnam were authorized by the National Assembly, after opposition lawmakers secured a relief package for farmers and fishermen. Implementation of the FTA with China took more than five months after the pact was signed by leaders of the two countries in June and more than a year after the two countries reached a substantial agreement. The two countries started negotiations in May 2012, and held 14 roundtables for more than two years.
A separate trade deal with New Zealand will also take effect on the same day, but a specific timeline for eliminating tariffs with Vietnam is still under consultations, officials said.
Calling it “a rare move,” the Trade Ministry said that Korea and China have completed administrative procedures as soon as possible to maximize economic benefits for businesses.
“The two sides have consistently worked for a swift implementation of the deal based on the common goal of lifting barriers within this year,” the ministry said in a statement, adding that it was agreed upon by the leaders of both countries at a summit held in late October.
The first set of tariffs will be eliminated on the day that the FTA goes into effect with the second round of tariff cuts on New Year’s Day, according to the Trade Ministry. Lowering tariffs twice within such a short period of time ― two weeks ― is expected to immediately benefit Korean exporters who have been struggling from dwindling global trade.
Asia’s fourth-largest economy, suffered the biggest drop in its export volume, a 16 percent decrease in October from the same month last year.
The government believes that Korean businesses would secure a favorable position in the Chinese market over their rivals from Japan and the U.S., as the deal offers advantages in terms of price competitiveness. The deal will eliminate tariffs on Korea’s imports from China currently valued at $42 billion and on its exports to China worth $73 billion. It will also get rid of tariffs on more than 90 percent of products, with automobiles and rice remaining protected.
The deal will also open the doors wider for Korean firms eyeing the service markets in the world’s second-largest economy. Officials will continue talks with their counterparts in Beijing to lift barriers on a wider range of industries including legal services, engineering, green technology and entertainment, the ministry said.
Trade expansion is expected to create about 54,000 jobs over the next 10 years along with more business opportunities for small and medium-sized Korean firms selling fashion items, cosmetics and electronics goods in the Chinese market.
However, despite the government’s rosy estimates, the trade expansion with China will not have an immediate impact, said Park Chong-hoon, head of Korea Economic Research at Standard Chartered Bank Korea.
“Major items such as semiconductors and mobile devices are already being exported without tariffs but the gradual tariff reduction on other products over the next five to 20 years will produce more tangible, positive outcomes,” he said in his report.
Meanwhile, officials of Korea and New Zealand exchanged letters to implement an FTA in Wellington.
In March, the two countries signed the deal that is set to remove tariffs on over 96 percent of New Zealand’s exports to Korea within 15 years. New Zealand will also completely eliminate its duties on all Korean products within seven years of the agreement coming into force. Sensitive agricultural products, including rice, were excluded from the deal.
By Cho Chung-un (email@example.com)