The South Korea-China free trade agreement (FTA), which took effect on Dec. 20, 2015, marks its 10th anniversary. Over the past 10 years, the South Korea-China FTA has been credited with helping expand trade between the two countries, as bilateral trade continued to grow after the FTA took effect. In fact, South Korea-China trade rose from $227.4 billion in 2015 to $272.9 billion in 2024. In the Incheon area, trade more than doubled in the 10 years since the FTA took effect. Along with rising trade, exports diversified to include semiconductors, automobiles, biotech, steel, and cosmetics. The South Korea-China FTA is seen as having helped expand the overall scale of trade between the two countries.
In particular, South Korea's exports to China rose significantly in the manufacturing institutional sector, and imports helped increase consumer welfare by facilitating the inflow of inexpensive and diverse Chinese products, many say. However, as China upgrades its industries, some items such as electronic components and cosmetics are facing nontariff barriers, intensifying competition with China.
"Tongsang" spoke with three experts — Assistant Professor Nam Eun-young of Dongguk University's Department of Global Trade, Invited Research Fellow Yang Pyeong-seop of the Korea Institute for International Economic Policy (KIEP), and Deputy Minister Lee Chi-hoon, head of the Global Economic Analysis Office at the Korea Center for International Finance — to hear their assessment of 10 years of the South Korea-China FTA and constructive ways the two countries can cooperate going forward.
―Looking back on 10 years of the South Korea-China FTA, what is the most meaningful change?
Nam Eun-young, chair of Dongguk University's Department of Global Trade (hereafter Nam Eun-young) "The 10 years of the South Korea-China FTA brought a qualitative transformation of industrial structure beyond simple trade expansion. Trade shifted from processing and assembly to advanced technology and high value-added intermediate goods, and exports to China came to center on technology-intensive items such as semiconductors and secondary batteries. Exports of advanced intermediate goods, which were only 37.8% when the FTA took effect, rose to 46.2% in 2024. Major items such as semiconductor equipment and battery materials shifted to zero tariffs. This change is the result of building institutional trust. The two countries established a 'structure of institutional mutual trust' that reduces uncertainty in trade procedures through measures such as electronic certificates of origin and streamlined customs clearance. It is a case where the institutionalization of uncertainty reduction as described in transaction cost theory was realized. The FTA has now evolved beyond a simple tariff agreement into an Economic Constitution that combines industry, technology, and administration, serving as an institutional catalyst that transforms trade from a transaction into a 'norm.'"
Yang Pyeong-seop, Invited Research Fellow at KIEP (hereafter Yang Pyeong-seop) "Amid a situation where the quantitative expansion of South Korea-China economic cooperation is constrained by the spread of global geoeconomic risks, a structural great transformation has taken place. With geoeconomic risks such as the THAAD (Terminal High Altitude Area Defense) dispute, the COVID-19 pandemic, the Ukraine-Russia war, and U.S.-China hegemonic rivalry, South Korea-China economic cooperation faced limits to growth. In 2022, bilateral trade peaked at $310.4 billion, but then contracted sharply due to the Ukraine-Russia war and the U.S. ramping up semiconductor restrictions against China. However, the relationship shifted from 'cooperative competitors,' where competition intensified within mutual cooperation, to 'competitive cooperators,' where fair division of labor occurs within mutual competition. Over the past 10 years, there have been major structural shifts in South Korea-China trade: a reversal of the trade balance, a reversal of trade dependence (import dependence > export dependence), a reversal of supply chain dependence, and the transfer of investment in China to third countries."
Lee Chi-hoon, Deputy Minister and head of the Global Economic Analysis Office at the Korea Center for International Finance (hereafter Lee Chi-hoon) "The most notable change is the structural shift in exports and imports as bilateral trade, which had steadily increased since 2015, peaked at $310.4 billion in 2022 and began to shrink. As exports declined relatively quickly while imports fell more moderately, China's role has been shifting from South Korea's largest export market to a supplier of parts and the like. As a result, South Korea's trade balance with China has posted a deficit of around $10 billion for three consecutive years since 2023, effectively ending China's role as the top contributor to South Korea's trade surplus."
―Bilateral trade grew an average of 2% per year, from $227.4 billion in 2015 to $272.9 billion in 2024. Can the performance of the South Korea-China FTA be explained based on these figures?
Nam Eun-young "From China's perspective, South Korea is, as of 2024, its second-largest trading partner after the United States, and among China's 22 FTA partners, it is the country with the largest trade volume. However, the performance of the South Korea-China FTA lies in the 'qualitative transformation' of trade — that is, a structural shift in trade — beyond a simple increase in trade value. South Korea-China trade has evolved from simple, price-centered transactions into a complex value-chain trade structure combining technology and services. Over the 10 years since the FTA took effect, South Korea's exports to China have been rapidly reorganized around high value-added intermediate goods.
The share of technology-intensive items such as semiconductors and fine chemicals expanded from 37.8% in 2015 to 46.2% in 2024. Under the FTA concessions, 6,279 items enjoy zero-tariff benefits, and items such as battery electrolytes and OLED parts have entered a 0% tariff bracket. The core achievement of the FTA lies beyond tariff reductions, in strengthening inter-industry linkages and enhancing rule-based trade stability. The institutional trust built through the South Korea-China FTA has helped corporations continue to trade stably despite policy volatility and supply chain shocks. Ultimately, the FTA has provided an institutional springboard for shifting South Korea's exports to China toward a technology- and innovation-based model, and the 10 years of the FTA can be evaluated as an era of industrial restructuring rather than mere trade expansion."
Yang Pyeong-seop "Over the past 10 years, South Korea-China trade increased an average of 2% annually. During the same period, South Korea's exports to China fell an average of 0.3% per year, while imports from China rose an average of 5.0% per year, turning the balance into a trade deficit with China from 2023. While this outcome is largely due to China's industrial and supply chain self-sufficiency and strengthened global competitiveness, the South Korea-China FTA can also be seen as one factor. It can be assessed that the FTA in goods favored China's exports to South Korea over South Korea's exports to China. In particular, since 2022, as China began tariff cuts in the intermediate goods sector, China's own supply capacity was greatly strengthened, weakening the effect of tariff reductions."
―Marking 10 years of the South Korea-China FTA, what new tasks are needed for the two countries to move from trade to industrial cooperation?
Yang Pyeong-seop "To expand South Korea-China economic cooperation from trade to industry, we must control global geoeconomic risks and strengthen cooperation that fits the great transformation. First, to overcome global geoeconomic risks, it is necessary to categorize industrial cooperation areas affected by U.S.-China technology competition into impossible (red), conditional cooperation (yellow), and essential cooperation (green). Next in importance is cooperation to respond to the global great transformation. In line with the era of green, digital, and artificial intelligence (AI) transition, it would be good to expand measures guaranteeing the free movement (zero-tariffing) of related goods and technologies, as well as cooperation to overcome geoeconomic risks. Finally, it is necessary to strengthen cooperation in future industries. In future industries at an early growth stage, the two countries can jointly promote technology development and industrialization cooperation to supplement the weakened demand for cooperation in traditional manufacturing. Establishing a fair foundation for industrial cooperation is also essential. We must work on policies and institutional efforts to restore mutual trust and ensure fair cooperation, such as addressing non-market measures (subsidies, predatory exports) and protecting intellectual property rights."
Lee Chi-hoon "Despite slowing economic growth, China still has a massive market and industrial potential, and it has already overtaken the United States in gross domestic product (GDP) on a purchasing power parity (PPP) basis. Therefore, South Korea should strategically manage its economic ties with China despite uncertainties from U.S.-China strategic competition and seek new cooperation opportunities. In particular, it is necessary to identify new cooperative 'blue zone' areas such as environmental technology, renewable energy, Smart City, biotech, and health care. At the same time, systematic response measures are needed to enhance technological competitiveness. We must actively respond to the shift in South Korea-China economic relations from past mutual complementarity to today's structure of competition with fine-grained cooperation. This means there is considerable room for partial cooperation even amid fierce competition. A representative case is Samsung Electro-Mechanics agreeing to supply multilayer ceramic capacitors (MLCCs) worth hundreds of billions of won to Chinese electric vehicle maker BYD. For reference, despite the spread of a negative view that 'there is nothing left to sell in the Chinese market,' South Korea has overtaken Japan to become the second-largest exporter to China."
―What role can the South Korea-China FTA play in securing stable supplies of critical minerals such as rare earths?
Lee Chi-hoon "Korea's dependence on the Chinese supply chain is about twice that of the United States. Excluding Vietnam, it is No. 1 in the world. Therefore, supply chain diversification and stabilization strategies are inevitably very important. Naturally, strategies should be pursued to ease the high dependence on China's supply chain. However, because it is realistically difficult to sharply reduce dependence on China, a dual strategy to strengthen supply chain stability is needed.
For example, in the case of critical minerals, China still accounts for 68% of global rare earth deposits, and in rare earth refining and processing, China monopolizes more than 90%. Given this structural reality, in the short term we should strengthen a cooperative framework with China to manage supply chain risks, while in the mid to long term we should pursue diversification to third countries and build domestic alternative supply chains in parallel. For reference, over the past three to four years Korea has continued efforts to reduce dependence on China's supply chain, but dependence has ultimately increased. The United States faces the same situation. Accordingly, while promoting measures with the Chinese government such as introducing a minimum quota system for rare earths, we should also consider approaches such as JDM (joint design manufacturing) to combine Korea's technological capabilities with China's production capacity, so that potential separation of supply chains would also increase the costs to Chinese companies, thereby helping stabilize our corporations' supply chains."
Nam Eun-young "The South Korea-China FTA is gradually evolving into a supply chain governance system. At the South Korea-China trade ministers' meeting held in Seoul in March 2025, about a year after the November 2023 meeting, the establishment of a 'supply chain hotline' for critical minerals, battery materials, and semiconductor parts was adopted as an official agenda item. At a high-level dialogue in October of the same year, they discussed easing export controls on rare earths and establishing a joint stockpiling system. This cooperation is not merely a matter of trade management; it is central to industrial security. In batteries and electric vehicles, South Korea's dependence on China for lithium, cobalt, and manganese reaches 70%. Supply chain cooperation based on the South Korea-China FTA serves as a safety net to institutionally manage such strategic resource risks, easing risks in the short term and leading to technology sharing and standardization in the long term. For example, a 'carbon-neutral battery certification system' or a 'mineral origin tracking system' jointly operated by South Korea and China has a strong chance of evolving into an international standard. The South Korea-China FTA is not just a market agreement; it is the institutional foundation of industrial security. Supply chain cooperation has taken hold as a practical domain of trade diplomacy that consolidates the two countries' industrial policies."
―Discussions continue on easing technical barriers to trade (TBT) between the two countries. What impact could institutional improvements have on small and midsize enterprises or export corporations?
Nam Eun-young "TBT2) easing is a 'lifeline for market entry' for small and midsize enterprises. Unlike large companies, SMEs bear a structural burden because they find it difficult to have their own facilities and must repeat the same certifications. The '9th South Korea-China FTA TBT Committee' held in Beijing in June 2025 addressed such on-the-ground issues and adopted as official agenda items SME-related technical regulations such as cosmetics, medical devices, red ginseng, and product carbon footprint certification. For example, they discussed ways to improve customs clearance delays for red ginseng. According to research by the Organization for Economic Cooperation and Development (OECD), introducing a mutual recognition arrangement (MRA) for digital certification can reduce export expense by 10% to 15% and shorten paperwork processing time by 40%. TBT easing translates directly into stronger export competitiveness for SMEs. TBT easing goes beyond simply streamlining administrative procedures; it is the process by which the two countries implement institutional trust at the industrial level. In particular, new TBTs such as carbon certification and green labels are a gateway for the South Korea-China FTA to expand into ESG (environmental, social, and governance) trade norms. The FTA's TBT discussions are opening the door to market access for SMEs and functioning as a key mechanism to enhance the FTA's credibility."
Yang Pyeong-seop "Easing nontariff barriers in areas such as TBT, sanitary and phytosanitary standards (SPS), and eco-friendly certification — arising from differing standards the two countries apply in safety, standards, and quality — is essential to cutting trade transaction expense and time through simplified trade procedures. I believe lowering nontariff barriers is more important than tariff reductions in activating trade between South Korea and China. This is especially crucial in expanding mutual trade in areas where import demand is rapidly increasing along with China's income growth, such as cosmetics, medical devices, pharmaceuticals, food (including red ginseng and other health foods), and eco-friendly products. Such easing measures must be premised on cooperation to ensure smooth practical enforcement of the institutions. We need to strengthen cooperation not only at the central government level but also with local governments."
Lee Chi-hoon "China now competes with the United States not only in basic science but also in applied technologies. As China's next-generation advanced technologies such as AI have improved to a world-leading level, arguments are gaining traction that the destinations for overseas students in advanced technology fields should be expanded from the United States and other advanced countries to China. A Korea Advanced Institute of Science and Technology researcher I recently met even assessed that 'in quantum computing, China is competing on equal footing with the United States.' Accordingly, it is necessary to aggressively pursue technological cooperation with China. It is also necessary to seek pathways for export corporations through technological cooperation with China."
Glossary
1) Institutionalization of uncertainty reduction
This refers to the process by which economic actors establish formal and informal institutions such as norms, laws, and agreements to reduce market volatility. Based on the transaction cost theories of Coase and North, it lowers transaction expense and risks through institutions, strengthens mutual trust, and enables stable economic activity.
2) TBT
In international trade, this refers to standards, technical regulations, and conformity assessment procedures (certification and testing) acting as barriers to the free movement of goods. The World Trade Organization (WTO) TBT Agreement helps ensure that such barriers do not cause unnecessary discrimination and are operated transparently for legitimate purposes.
※ This article was published in the November issue of the monthly magazine "Tongsang." Please search for "Monthly Tongsang" on Naver: 월간 통상.