India-Republic of Korea-Comprehensive Economic Partnership Agreement

Korea and India signed a Comprehensive Economic Partnership Agreement in Seoul on August 7, 2009, heralding greater economic exchanges between the two countries. The free trade agreement is expected to take effect from January 2010.

The trade deal, which comes after more than three years and twelve rounds of negotiations, commits the two countries to lowering or eliminating import tariffs on a wide range of goods over the next 10 years and expand opportunities for investments and exchanging services. Korea is to phase out or reduce tariffs on 90 percent of Indian goods over the next decade while India will phase out or cut tariffs on 85 percent of Korean goods.

According to Korea Institute for International Economic Policy (KIEP), the CEPA is expected to boost bilateral trade by as much as $3.3 billion annually. The two-way trade between Korea and India reached $15.56 billion in 2008, a 35 percent increase over the previous year. The prime focus of Korea for the CEPA negotiation with India was to expand the export market of Korea. Tariffs on Korean auto parts, the biggest export item to India, are to be reduced to 1 percent over an eight-year period from the current average of 12.5 percent, and would consolidate Korean auto industry’s share in India.

Since, over 60 percent of the Korea’s exports are to developing countries, there is scope to increase Korean exports to India considering that Indian imports are increasing by an average rate of 20% during the last many years.

Korean business and leadership regard that India is a country with great potential. It has a population of more than 1.15 billion people and its economy is growing at an annual average of about 8 percent. It is also the world’s fourth largest market after the United States, China and Japan in terms of purchasing power parity. Given such potential for growth, the benefits of CEPA for Korea could be seen from a long-term perspective. A notable feature of the Korea-India CEPA is that goods made at the Gaeseong industrial complex, an inter-Korean economic joint venture in North Korea, will be regarded as made in South Korea.

India will also benefit from CEPA agreement. The Korea-India CEPA is to allow temporary movement of professional workers such as computer programmers and engineers etc. Under CEPA, 163 such professions would be allowed access to Korean services market. This is the first time that Korea has agreed to such a commitment in its bilateral free trade agreements and will open up opportunities for Indian English teachers, software engineers etc to work in Korea. The Korea-India CEPA agreement is Korea’s first free trade agreement with a member of the fast growing “BRICs” nations. For India, it is the first with an OECD nation.

The Indian economy is still driven by primary industry but a strong services sector, with an emphasis on agriculture. India, therefore, can be an export market for Korean manufacturing industries, and will bring synergy in services sector with Korea’s known strengths in semiconductors and electronics. This will pave the way for greater collaboration making India a production base with inexpensive labor for manufacturers. For in stand, Hyundai Motors has a major investment in the southern Indian State of Tamil Nadu with facilities to manufacture 600,000 small cars per annum. CEPA will lead to greater investments by Korea in India enabling them to take advantage of the substantial & growing domestic market with a young demographic profile (about 60% of Indian population is below 25 years of age) while its investments will continue to be protected under the provisions of CEPA which equates Korean investment with local Indian investment.

By including the possibility of aggressively utilizing the globally acknowledged IT manpower and software technology of India, Korea will be able to improve competitiveness in its own manufacturing sector.

CEPA is widely expected to transform the relations between Indi and ROK and is a major landmark in the growing bilateral ties.