On October 16, the Ministers of Trade in Korea and Indonesia announced a new principle agreement to eliminate tariffs on steel products and auto parts between the two countries.
Their agreement deals with the Korea-Indonesia Comprehensive Economic Partnership Agreement, or KI-CEPA, which is equivalent to a free trade agreement but also focuses on a broader scope of economic cooperation.
Under the deal, South Korea and Indonesia will eliminate tariffs on 95.5% and 93% of products, respectively.
Trade volume between South Korea and Indonesia amounted to $20 billion in 2018, up from $17.9 billion the year before, South Korean data shows.
In the past, Korea has enjoyed tax incentives through the FTA between ASEAN and Korea. But the tariffs is 5% for hot-rolled steel sheets, 5 – 15% for cold-rolled steel sheets, 5% for synthetic resins and 5% for automobiles and parts. With this Agreement, the tariff will be decreased to 0%.
South Korea is the sixth largest supplier of Indonesian imports and the seventh largest destination for the latter’s exports. Indonesia’s imports from South Korea include synthetic and natural rubber, steel and integrated electronic circuits while its exports to South Korea consist mostly of coal, copper ore, natural rubber, plywood and unforged tin.
The countries plan to officially finalize KI-CEPA by end-2019 before conducting a signing ceremony some time in H1 2020. The trade agreement must be ratified by the respective legislatures of South Korea and Indonesia.
If tariffs are reduced to 0% for South Korea, factories in Vietnam will have more competitor in addition to those available in the ASEAN region. But, Vietnam will have more advantages in terms of geographical distance as closer transportation will have price advantage.
However, in the future, Vietnam’s production will also need new strategies when tax incentives are applied.
To better understand trade defense policies or technical barriers, please feel free to contact us:
Ms Lan – Juridical Manager of MRS Steel
Mobile – WhatsApp: 00 84 962343746.