By: Suhani Jaggi
Image source: The Statesman
Introduction
India and South Korea initiated another round of negotiations to improve the existing Free Trade Agreement (FTA), dubbed the Comprehensive Economic Partnership Agreement. Stemming from the dissatisfaction with the outcomes of the CEPA and a rising trade imbalance between the two nations, India aims to utilize this as an opportunity to further the interests of Indian exporters and mitigate the trade deficit. As a part of India’s efforts to upgrade its Free Trade Agreement (FTA) with South Korea, the Department of Commerce is collaborating with various ministries, including heavy industries, steel, textiles, chemicals and petrochemicals, to create a final offer list.
Background
During the waning years of the 2000s, officials from India and South Korea recognized the potential to improve economic interactions between the two countries. South Korean businessmen had their sights on India’s vast population and its burgeoning middle class. To expand cross-border trade between two competent economies, 12 rounds of negotiations were held in three years, resulting in the ROK and India signing a Comprehensive Economic Partnership Agreement [CEPA] in Seoul on 7th August 2009.
The CEPA came into effect on 1st January 2010. Since then, ten rounds of talks have been completed. Ambassador of the Republic of Korea Chang Jae-bok rightfully outlined at the Korea Fair in India in 2022 that the CEPA is a core basis for economic cooperation between the two countries.
The Tragedy of Disparate Outcomes
The outcomes of the existing agreement are not as favourable to the Indian Economy. India’s exports to Korea have declined to USD 6.41 billion in 2023-2024 against USD 8 billion in 2021-2022. In contrast, South Korea exports stood at 21.13 billion in 2023-2024 from USD 17.5 billion in 2021-2022.
An economic think tank Global Trade Research Initiative (GTRI) has observed the dichotomy between the average trade deficit pre and post-CEPA. The average trade deficit between 2007-2009 was approximately 4 billion USD. However, post CEPA (2022-2024), while the average exports surged to USD 7.1 billion, the imports reached USD 19.9 billion, leading to a much higher trade deficit of USD 12.8 billion. The GTRI report indicates that the post-CEPA era has marked a 220 per cent increase in the trade deficit.
While tariff barriers are being eliminated, Indian exporters face the broader issue of non-tariff barriers. These serve as obstacles in the form of stringent standards, regulations and certification requirements. India calls for mutual regulations of such standards, qualifications and certifications.
Previously, India showed serious concern regarding this issue during the 9th round of the India-ROK Comprehensive Economic Partnership Agreement (CEPA) up-gradation negotiation which took place in November 2022. While both sides followed an outcome-oriented approach, the efforts undertaken have proven insufficient in creating a more favourable arrangement for India.
The India Bargain
The prime objective of India’s bargain is to create an equitable trade relationship. South Korea’s restrictive non-trade barriers make it difficult for Indian goods to penetrate South Korea’s market. Amidst the discussions, India has called for greater market access for products like steel, rice and shrimp. It has highlighted the reluctance of South Korean firms to purchase Indian Steel.
Additionally, India is looking for greater liberalization in the service sector and opportunities and access for Indian professionals in the South Korean market. Bearing in mind the wide pool of experienced professionals, India is particularly focused on healthcare and IT. India is pushing South Korea towards establishing more substantial concessions, especially in sectors that have a competitive edge, ensuring mutual benefits are enjoyed.
Conclusion
India’s economic relations with ASEAN countries lie on a similar spectrum as that of South Korea. As an emerging economy, its international economic policy must focus on creating equitable opportunities rather than hindering results. With India’s position as a potential regional power, leveraging its economy is crucial to gaining diplomatic influence. Improving the terms of the Free Trade Agreement will ensure long-term economic sustainability and the push for talks to renegotiate the India-South Korea CEPA underscores its recognition of this opportunity and serves as a testament to its commitment towards economic growth and cooperation. India must articulate its demands, successfully fast-track the ongoing talks and sketch out a framework which supports its economic trajectory.
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