UPDATE: South Korea and Malaysia have just finalized a pivotal free trade agreement during the 47th ASEAN summit in Kuala Lumpur on October 26, 2025. This landmark deal, six years in the making, is set to significantly boost exports of South Korean automobiles and steel products to Malaysia, South Korea’s third-largest trading partner in Southeast Asia.
This agreement is critical as it marks a significant shift in economic strategy. South Korean President Lee Jae Myung announced plans to elevate annual trade with ASEAN countries to $300 billion, a substantial increase from last year’s $192.8 billion. The pact reflects Seoul’s commitment to diversifying trade relationships, reducing reliance on traditional partners such as the United States and China.
Under the new agreement, Malaysia will eliminate tariffs on 682 products, while South Korea will reduce tariffs on 288 products. This includes crucial components for electric vehicles, where tariffs on completely knocked down (CKD) kits will be abolished, and duties on finished electric SUVs will drop from 30% to 15%.
The automotive sector is particularly poised for growth, as the Malaysian car market is the second-largest in ASEAN, dominated by local brands like Proton and Perodua, which hold a 70% market share. The dismantling of trade barriers will provide South Korean manufacturers with unprecedented access to this lucrative market.
Additionally, the agreement will benefit Malaysian producers, as South Korea opens its market to a variety of agricultural and marine products, including tropical fruits like durians and pineapples. Importantly, Malaysia will also abolish foreign ownership limits in its automotive manufacturing sector, a move expected to attract increased South Korean investment in electric vehicle production and component assembly.
Officials view this pact as a stepping stone toward expanding bilateral free trade agreements with other ASEAN members, following successful negotiations with countries such as Singapore, Vietnam, and Indonesia.
While the deal awaits domestic ratification in both countries before implementation, trade officials in Seoul are optimistic that it will enhance economic cooperation and mitigate geopolitical risks, particularly amid the escalating US-China trade tensions.
Stay tuned for more updates as this critical agreement unfolds and shapes the future of trade in the region.
