Did China just grant one-of-a-kind trade status?

A new free trade agreement may give companies from South Korea a serious leg up—in China.

The trade deal, signed last week by China's Xi Jinping and Korea's Park Geun-hye, may not only eliminate tariffs on 90 percent of goods traded between the two countries, it could also provide South Korean firms with protections that would allow them to receive the same "national treatment" as domestic companies, rather than be regulated as foreign entities.

China's President Xi Jinping (R) shakes hands with South Korea's President Park Geun-hye during a meeting in Beijing, November 10, 2014.
Kim Kyung-Hoon | Reuters
China's President Xi Jinping (R) shakes hands with South Korea's President Park Geun-hye during a meeting in Beijing, November 10, 2014.

The terms of the deal are still pending approvals in both countries. But they could include a provision for due process and appeals during "antitrust probes," which the Chinese government is bringing with increasing frequency against foreign firms operating in China.

South Korea would be the first nation to gain such rights in China. Given the surge of probes, especially among American, European and Japanese firms, being considered a "local" firm could mark a big advantage for South Korean companies.

The provision is made more likely, experts say, by the fact that it wouldn't be South Korea's first time scoring antitrust provisions through a free trade agreement. The 2007 pact between the United States and South Korea—dubbed KORUS—held the world's first "robust procedural protections" for antitrust matters, according to Tad Lipsky, partner at international law firm Latham and Watkins and former chief antitrust lawyer for Coca-Cola.

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"Antitrust laws have very rarely been incorporated in trade agreements," Lipsky said. "If this FTA (free trade agreement) with Korea has a specific application to antitrust, this would be the first for China."

Prior to KORUS, antitrust guidelines in trade agreements have been rudimentary at best. The Trade Related Aspects of Intellectual Property Rights (TRIPS) agreement, the North American Free Trade (NAFTA) agreement, and the U.S.-Chile trade agreement featured minor competition guidance but were not as detailed as KORUS, Lipsky said.

The new agreement is expected to go into effect late next year, a Chinese commerce ministry official said on Monday. Two-way trade between Korea and China reached $230 billion in 2013, almost double the trade between Korea and the United States.

Why does antitrust protection in China matter?

Many international leaders and business groups have accused China of using investigatory tactics that are out of line with internationally recognized due process practices and which render foreign firms powerless to appeal antitrust investigations.

They have also expressed concern that the Chinese courts that handle antitrust probes are not fully independent and that they "may be influenced by the Communist Party," according to Stuart Chemtob, senior of counsel at law firm Wilson, Sonsini Goodrich & Rosati, who spent more than 30 years with the Justice Department's antitrust division, where he headed U.S.-Asia antitrust issues.

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"One of the key areas of international concern is whether or not the appeals process (for antitrust probes) is effective," Chemtob said. Therefore, if China and South Korea's free trade agreement provides concrete assurance of due process, it significantly lowers the investment risk and barriers for South Korean firms, he said.

Antitrust probes in China have also disproportionately targeted western and foreign firms of late, because the Chinese government wants to foster innovation and indigenous technology development from domestic firms, said Bill Wilson, senior economics research fellow at the Heritage Foundation and former chief economist at Ernst & Young.

"The Chinese at one time were obsessed with attracting (foreign direct investment). It was their biggest source of economic growth for decades. But now, their tech firms can't compete. The Chinese want to move up the value chain and develop businesses at home," Wilson said.

Since China's anti-monopoly law went into effect in August 2008, 26 out of the 875 company merger transactions reported to China's Ministry of Commerce were challenged—all of them involving foreign companies, Chemtob said. None of the challenged transactions exclusively involved domestic Chinese companies. Of the 26 challenges, 24 of them were eventually approved with additional conditions and two were blocked.

China's Ministry of Commerce did not immediately respond to CNBC's inquiry for comment.

What the trade deal means for Korea

Although larger, multilateral agreements in the long run may reduce the advantages of bilateral agreements, this new pact may give South Korea a head start in establishing and operating in China, Chemtob said.

If the pact does indeed establish a strong antitrust provision and appeals process, and "if it's not available to other companies and countries, then the benefits for Korea will go beyond short term advantages," Chemtob said.

And while China may be South Korea's biggest trading partner, the U.S. still remains South Korea's most important ally. The trade deal is not strong enough to overshadow the U.S.-Korea alliance, said Ann Lee, economics professor at New York University and author of "What the U.S. Can Learn From China."

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"There are thousands of American troops stationed in South Korea," Lee said. "The military, security component is so overwhelming that the U.S. will obviously continue to be an ally."

However, the China-South Korea deal may provide South Korea with more bargaining chips in negotiating terms for the proposed, U.S.-led Trans-Pacific Partnership (TPP) trade agreement. That deal would include Japan and 10 other countries, but excludes China. Korea expressed interest in joining the TPP, and the U.S. government has welcomed Korea's interest, according to U.S. Secretary of Commerce Penny Pritzker. TPP may add countries once negotiations end with the first round of partners.

"The FTA with China may prompt South Korea to negotiate harder on concessions in the TPP, and their leveraging position will feel more secure," she said.