With Korea and Malaysia concluding a new free trade agreement (FTA), tariffs on key export items such as automobiles and steel will be significantly lowered. The 10% tariff on parts kits (CKD) for assembling electric vehicles will be fully eliminated over 10 years, and the tariff on finished electric SUV vehicles will be reduced from 30% to 15%. Tariffs on major steel products, including cold-rolled and coated steel sheets, which had been at the 5% to 15% level, will also be further reduced, substantially improving export conditions.
The Ministry of Trade, Industry and Energy said on the 27th that Yeo Han-koo, head of trade negotiations, on the 26th (local time) in Kuala Lumpur, Malaysia, finalized the Korea-Malaysia FTA negotiations with Malaysia's Minister of Investment, Trade and Industry Tengku Zafrul. This agreement is Korea's 27th FTA.
Under the agreement, Korea will liberalize 94.8% of all items, and Malaysia 92.7%. Malaysia will further reduce or eliminate tariffs on a total of 682 items, and Korea on 288 items, compared with the Korea-ASEAN FTA and the Regional Comprehensive Economic Partnership (RCEP). In particular, the tariff cuts are large in the automobile sector.
For electric vehicle CKD, the existing 10% tariff will be eliminated evenly over 10 years (reduced by 1 percentage point each year) to ultimately reach 0%, and the tariff on finished electric SUVs will be cut in half from 30% to 15%. The tariff reductions will first apply on the agreement's effective date and then proceed sequentially every Jan. 1.
Internal combustion engine vehicles are also subject to additional reductions. The tariff on gasoline CKD automobiles (8% to 28%) will be further reduced by 1 to 3 percentage points each year. For hybrid and diesel CKD, tariffs on items not conceded under RCEP will be reduced from 8% to 4%.
A Ministry of Trade and Industry (MOTI) official said, "Malaysia is the second-largest automobile market in ASEAN, but domestic companies (Proton, Perodua) have a market share of over 60%, and sales of our brands are relatively low," adding, "Through this FTA, we eliminated or reduced tariffs on many promising export items for our corporations, laying the groundwork for Korean automobiles to enter the Malaysian market."
In the steel sector, tariffs (5%) on nine items, including cold-rolled and some coated steel sheets, will be completely eliminated. Twelve items, including hot-rolled and some coated steel sheets (those other than the 5% tariff category), will see tariffs reduced from 15% to 10%. Korean steel not produced locally in Malaysia will receive duty-free benefits, and even if laws change in the future, it will be guaranteed most-favored-nation treatment equal to competitors such as Japan.
In addition, tariffs will be eliminated on petrochemical products such as polyethylene and polypropylene, and the remaining tariffs on palm fatty acid distillate, a biofuel feedstock, will also be fully eliminated.
In the services and investment sector, Malaysia adopted the "negative list" approach for the first time among its FTAs, widening market opening. The foreign equity cap on investment in automobile manufacturing has also been lifted, which is expected to further improve conditions for local entry by Korean corporations.
Meanwhile, Korea will eliminate the remaining tariffs on bio feedstocks such as palm fatty acid distillate. As global competition to secure bio feedstocks intensifies, cost savings and supply stability are expected. In addition, by shortening the tariff elimination period for items such as urea solution, on which Korea relies entirely on imports, compared with RCEP, supply chain stability will also be strengthened.
The government granted concessions mainly on tropical fruits such as durian, pineapple, and banana, and on seafood such as scallops and processed fish, which have low import volumes from Malaysia. Most agricultural, forestry, and fishery products with high domestic sensitivity were not further opened, minimizing the impact on the market.
Deputy Minister Yeo Han-koo said, "This bilateral FTA is expected to improve trading conditions by further opening the market for our key export items such as automobiles, steel, and petrochemicals, and to contribute to expanding cooperation in future-oriented fields such as digital, clean energy, and bio," adding, "We hope the bilateral relationship will deepen from being merely export-import partners to a strategic partnership in future industries."
The government plans to bring the agreement into force as soon as possible after legal review and ratification by the National Assembly.