A preliminary trade deal equivalent to a free trade agreement has been agreed between Indonesia and South Korea. The agreement establishing broader economic cooperation is aiming to boost the trade between the two countries by almost 50% by 2022.
The move which comes after a five-year break from negotiations between the two countries, is part of South Korea’s on-going efforts to expand exports in the area. Both countries are expected to eliminate tariffs of products accordingly; 95.5% for South Korea and 93% for Indonesia.
South Korean exporters will be able to boost supply into Indonesia, due to the elimination of steel, car, auto part and synthetic resin tariffs. Nevertheless, South Korean farmers will not be protected as many agricultural products will not be included in the deal.
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Moreover, the tariffs are expected to further promote the export of Indonesian fish and beer. Indonesia’s exports to South Korea include coal, copper, rubber and tin.
According to South Korean official data, in 2018, the trade volume between South Korea and Indonesia was set at $20 billion; an increase from the 2017 figure of $17.9 billion.
Reuters reports that the South Korean Trade Minister, Yoo Myung-Hee noted
Korea, as one of the largest beneficiaries of free trade, and Indonesia, as leader of ASEAN, are signaling to the world our true support for free, open and rules-based trade in this very challenging time.
South Korea, in order to limit reliance on the U.S. and China even if there are trade deals in place with the two countries, is also negotiating with Malaysia and the Philippines.
In fact, on September 24 2018, South Korea signed a revised free trade agreement with the US aiming to open the Korean market to increased American exports, mainly automobiles, further allowing the US to impose a 25% tariff on Korean trucks until 2041. Additionally, this September, South Korea has been experiencing a year-on-year reduction on exports at 11.7% and $44.7 billion; part of a wider decline experienced throughout the year due to the trade war between the U.S. and China and the weak prices of semiconductors.
In particular, US sanctions on Iran have forced South Korea to look for alternative sources of condensates, thereby impacting tonne-mile demand. As explained, China’s imports of South Korean petchem products decreased by 2.3% due to trade war with US. This led South Korea’s petchem exports to drop 1.4% to 2,761,000 tonnes in 2018 from 2,799,000 tonnes in 2017.
