In the lastest development of negotiations that have been ongoing since May 2012, the President of China, Xi Jining, and the President of South Korea, Park Guen-hye, signed an outline deal yesterday that will lead to a formal agreement in 2015, the Korean government confirmed.
The two sides say that the remaining formality is to now obtain domestic legislative ratification before it is made law.
Once it becomes law, the legislation will see tariffs removed on more than 90% of goods traded between the two companies over the course of 20 years, which will include a long list of consumer products, specifically cosmetics and personal care.
The move is a coup for China, which wants to develop trade relations that challenge the global trading power of the US.
But more importantly, it could spell significant trade opportunities for South Korean cosmetics companies, who are already enjoying a wave of success as Chinese consumers scramble to get their hands on what are perceived to be high quality, good value for money products.
Targeting lower trade tariffs
That is because, under current trading regulations with China, South Korean beauty products are hits with a tariff as high as 130%, putting them very much in the luxury and prestige end of the retail spectrum.
However, if lobbying from the South Korean industry is successful, as part of the free trade pact, players such as Amore Pacific, The Face Shop and LG Household & Health Care, will be looking to ensure that their products can be marketed in China with a far lower tariff, possibly even zero.
In recent years a huge influx of tourism from mainland China to South Korea has helped to raise the profile of many of the country’s consumer brands amongst Chinese consumers, with many putting shopping for cosmetics and other consumers goods at the top of their to do list.
Chinese consumers scramble for Korean cosmetics
Chinese consumers show great enthusiasm for Korean brands, with recent research carried out by the Seoul Business Agency showing that those aged 20 to 40 give Korean cosmetic and personal care products a 90% approval rating.
Indeed, cosmetics exports from Korea topped $288 million during the first quarter of this year, which is a rise of almost 25% percent from the same period a year earlier.
In particular, Amorepacfic has been a major success story over in China since it began its major push to court consumers there in 2011 with its Laneige brand. It has says it is confident of reaching its $626 million sales target there by the end of 2015.