On February 1, 2022, Korea joined 14 other countries — China, Japan, Australia, New Zealand, and the 10 ASEAN countries — in the Regional Comprehensive Economic Partnership (“RCEP”). 

RCEP is Korea’s first multilateral free trade agreement (FTA) and is also the world’s largest mega-FTA covering approximately one-third of global GDP, population, and trade.  RCEP is expected to create new opportunities for Korean importers and exporters.  In particular, it brings Korea into an FTA with Japan, which does not have a bilateral trade agreement with Korea.

Since RCEP is distinct from other FTAs, with different levels of tariff concessions for the various goods covered as well as different origin criteria compared to other FTAs, there may be new opportunities for companies to enjoy tariff reduction benefits by utilizing RCEP.  As a result, importers and exporters should carefully review the applicable provisions of RCEP to see whether such benefits are available.  We discuss below certain key provisions of RCEP that are worth noting for companies.

1.   Key Provisions Relating to Origin 

While the requirements regarding origin under RCEP are similar to those under previous FTAs,  RCEP includes certain features that can be utilized to fulfill the origin requirements where the origin requirement specific to each type of product might be more difficult under other FTAs.  One example is the “cumulation” provision under RCEP, which allows a company in one RCEP-member country to treat materials or goods originating in other RCEP-member countries as originating in its own country.  In the case of a company manufacturing products in Korea, for example, raw materials originating in another RCEP-member country may be treated as raw materials originating in Korea.  

However, the customs authorities of importing countries, when conducting origin verifications on imported goods, may require the submission of documents evidencing the origin of materials that are cumulated.  In order to reduce the risks when utilizing RCEP preferential tariff rates, it would be advisable to ensure that companies are in possession of RCEP proofs of origin for the goods that will be cumulated.
 

2.   Proofs of Origin

The types of proofs of origin that can currently be issued under RCEP are: (i) certificates of origin by an issuing body of the exporting party at the request of the exporter, producer, or their authorized representative; or (ii) a declaration of origin by an approved exporter.  Compared to the Korea-ASEAN FTA and the Korea-China FTA, under which only certificates of origin issued by issuing bodies are permitted, RCEP allows companies to issue certificates of origin themselves as long as they are approved exporters.  As such, it is expected that RCEP will be more convenient for companies to utilize.

In addition, under RCEP, a “back-to-back proof of origin” may also be used to receive preferential tariff treatment in the importing RCEP country.  A back-to-back proof of origin is an RCEP proof of origin issued in an intermediate RCEP country based on an RCEP proof of origin issued in the initial RCEP exporting country.  For example, if goods are exported from Korea to an intermediate country (i.e., a transit country) and then partially exported to the final importing RCEP country, subject to certain limitations and requirements, a back-to-back proof of origin may be issued in the intermediate country for the partial export quantity instead of the full quantity covered under the proof of origin from the initial RCEP exporting country.  Therefore, if only permitted additional processing such as repackaging, separation of consignments and labeling are carried out in an intermediate RCEP country, companies should review whether it may be possible to issue a back-to-back proof of origin for those products.
 

3.   Tariff Differentials

Under RCEP, the 15 participating countries do not follow the same tariff concession schedule; instead, each country prepares its own tariff concession schedule for each of the other member countries.  Thus, even the same item may have a different tariff rate when imported into an RCEP-member country depending on the exporting country.

As such, RCEP sets forth criteria for determining which RCEP member country is deemed as the country of origin of products in order to clarify which tariff rates should apply.  It will be important to consider these rules carefully, including the additional criteria that must be met with respect to certain products that are deemed “sensitive” by the importing country.
 

As mentioned above, since the origin requirements under RCEP are different from those set out in Korea’s other FTAs, companies may be able to enjoy tariff reduction benefits by utilizing RCEP.  Companies that engage in imports and exports should closely review their current import/export transactions and carefully analyze how RCEP may be utilized.