South Korea and Mongolia signed a CEPA enabling tariff-free critical mineral trade, strengthening supply chain security and reducing dependence on China.
South Korea and Mongolia have formally agreed to a Comprehensive Economic Partnership Agreement (CEPA), paving the way for South Korea to import rare earth elements and other critical minerals from Mongolia tariff-free. This landmark agreement, reached during South Korean President Lee Jae-myung's state visit to Mongolia on July 9, 2026, aims to significantly diversify South Korea's critical mineral supply chain and reduce its heavy reliance on China.
The CEPA, under negotiation since December 2023, achieved a high liberalization level, removing import tariffs of 2%-5% on key Mongolian minerals, including copper, molybdenum, and rare earths. This will allow South Korean companies to secure essential raw materials more economically. Beyond mineral trade, the agreement also strengthens cooperation in energy, technology, and consumer goods, with Mongolia immediately eliminating tariffs on Korean cosmetics and phasing out tariffs on ramen and seasoned seaweed within five years. Both nations have committed to increasing bilateral trade to $1 billion by 2030.
South Korea's primary motivation for this agreement is to enhance its economic security by diversifying its critical mineral supply sources. The country is highly dependent on imports for nearly all its critical minerals, with China supplying approximately 80% of its rare earth imports. Rare earths are vital for South Korea's advanced industries, including electric vehicles, semiconductors, defense systems, and renewable energy technologies. The vulnerabilities of this reliance were highlighted by China's export controls on gallium and germanium in 2023. This CEPA forms a crucial part of South Korea's broader strategy to reduce single-country dependency to under 50% by 2030.
Mongolia holds the world's second-largest rare earth reserves after China, estimated at around 31 million tons. Despite this vast potential, Mongolia has not yet established significant rare earth production due to limited processing infrastructure, power deficits, and complex export logistics. The CEPA is expected to unlock Mongolia's mining potential by attracting South Korean investment, technology, and expertise for exploration, extraction, and processing. The Rare Metals Center, established in Ulaanbaatar last year, will serve as a focal point for joint research and supply chain stability. This cooperation will help Mongolia develop its mining sector and integrate into global high-tech value chains.
This agreement represents a significant geopolitical move, as South Korea actively seeks to de-risk its supply chains in an era of intensifying global competition over critical minerals. It strengthens South Korea's "Third Neighbor" diplomacy, aiming to reduce dependence on its two large neighbors, China and Russia. For the rare earth industry, this partnership could gradually shift global supply dynamics, offering an alternative to China's near-monopoly on processing capacity. However, turning these agreements into actionable, financed projects remains crucial for long-term success.
Impact on Products and Chemical Commodities
The South Korea–Mongolia CEPA is expected to strengthen the long-term supply outlook for critical minerals such as rare earth elements, copper, and molybdenum by eliminating import tariffs and encouraging bilateral investments. While the agreement is unlikely to create an immediate increase in mineral production due to Mongolia's limited processing infrastructure, it lays the foundation for future capacity expansion and diversified global supply. For ChemAnalyst-tracked commodities, the direct impact on conventional petrochemicals and bulk chemicals will remain limited in the short term. However, downstream sectors linked to battery materials, electronic chemicals, catalysts, specialty chemicals, semiconductors, electric vehicles, and renewable energy components could benefit from improved raw material availability over the medium to long term. Prices of rare earth oxides, molybdenum products, and certain battery-related specialty chemicals may witness gradual downward pressure as alternative supply sources emerge, although near-term prices are expected to remain largely stable until new mining and processing projects become operational.
