South Korea signed a Comprehensive Economic Partnership Agreement (CEPA) with Indonesia on Friday, achieving fruition in eight years after the two countries launched negotiations in 2012 to pave the way for Korean companies to gain stronger foothold in the world’s fourth-most populous country and the largest economy in Southeast Asia.

Under the accord signed by Sung Yun-mo, Korea’s minister of trade, industry and energy, and his counterpart Agus Suparmanto, in Seoul, Korea will eliminate tariffs on 95.8 percent of Indonesian goods and Indonesia 94.8 percent of Korean goods - 1.6 percentage points and 3.3 percentage points higher, respectively, greater than the terms of the Regional Comprehensive Economic Partnership (RCEP).

RCEP, the world’s largest free trade agreement signed in November, involves Korea and 14 partner countries China, Japan, Australia, New Zealand, and 10 members of the Association of Southeast Asian Nations (ASEAN).

Indonesia added additional elimination in tariffs or shortened the period on items that have not been open under RCEP. They include Korea’s mainstay export items such as automobiles, steel plate products and vehicle components, as well as items of small- and mid-size enterprises such as auto components and textile.

Under CEPA, Indonesia will apply zero tariff rate immediately or within five years on vehicle components such as transmissions and sunroofs in and also precise chemical products which under RCEP tariffs were reduced over a longer period.

Korea, meanwhile, will eliminate tariffs immediately or by stage on Indonesian Bunker C oil, precise chemical raw materials, raw sugar, and beer.

The Korea-Indonesia CEPA is Korea’s third bilateral free trade agreement (FTA) with an ASEAN country after ones with Singapore and Vietnam. It is also the first bilateral FTA with a Southeast Asian country after the government announced its New Southern Policy in 2017.

The latest agreement in particular is expected to expand opportunities for Korean companies to make inroads into Indonesia’s service market as it opens up more of the country’s online game, retail, and construction service sectors.

As compared with RCEP, Indonesia opened up more of its online game service market and improved foreign investment equity restrictions in retail and construction sectors.

The two countries also introduced a “ratchet clause” in some service sectors to prevent further tightening of regulation. The sectors include law, international shipping and cargo transportation and 11 others for Indonesia and engineering, data base, advertisement and 32 others for Korea.

“CEPA lowers tariff barriers for companies in both countries and improves investment conditions,” Sung said. “It is also a comprehensive cooperative platform that even supports economic cooperation projects through a cooperative committee.”

The Korean government plans to accelerate domestic procedures to get CEPA ratified by the National Assembly so that the accord goes into effect at an early date.

By Lee Eun-joo

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]