India to upgrade its existing free trade pact with South Korea

The issue of gold imports from Korea will also be discussed between both governments

India has decided to upgrade its existing trade pact with South Korea, despite the domestic industry expressing concerns over the agreement disproportionately favouring that country. This follows Commerce and Industry Minister Suresh Prabhu’s visit to Seoul last week to review the Comprehensive Economic Partnership Agreement (CEPA), which was signed between the two countries in 2009. Both countries have decided to finalise the CEPA upgrade negotiations at the earliest, possibly before the end of 2018.

The issue of gold imports from Korea will also be discussed within the larger framework of the CEPA, a senior official said on condition of anonymity. The Directorate General of Foreign Trade (DGFT) notified last month the withdrawal of the zero-duty import facility for gold, silver, and their coins and articles. The facility was allegedly being misused for importing duty-free gold from Korea since July.

Any move by India to widen the CEPA runs the risk of further angering domestic exporters, who claim the pact has disproportionately helped Korean exporters. For example, while India imported $12.58 billion worth of goods from Korea in 2016-17, its exports to the east Asian nation totalled only $4.24 billion. This ratio of inbound to outbound trade has only strengthened with time. 

However, a focus on enhancing market access and strengthening the rules of origin will be the key to India’s position as it aims to improve the chances of Indian exporters, a commerce ministry official said.

“Korean companies such as Samsung and LG have penetrated deep into the Indian consumer goods market. Automobile majors such as Hyundai have benefitted as a direct result of CEPA,” a senior business leader from the Confederation of Indian Industry said, requesting anonymity.

India will be cautious in broadening the terms of the deal at a time most of our existing bilateral trade engagements have been questioned for their efficacy in promoting exports, a commerce department official indicated to Business Standard a few days ago. 

He had also pointed out the issue of massive gold imports from Korea in recent months, apart from certain remaining non-tariff barriers to trade. Some of these include tough inspection norms for Indian produce and stringent visa requirements, both of which were discussed during the last meeting, it is learnt. 

On Wednesday, the Korean deputy minister for trade, industry and energy, Young Sam Kim, had also batted for broadening the agreement, saying that headroom for growth was still available. 

“The CEPA has increased bilateral trade volumes by 50 per cent,” Kim said, adding that the list of items covered can be increased further and the rules of origin should be strengthened.

“While our import dependency can be brought down in major categories such as plastic and related products ($ 1.2 billion) and organic chemicals ($700 million), the same is not true for India’s reliance on machinery products ($2.8 billion) from South Korea or select iron and steel imports ($1.5 billion) — the two largest imported categories,” a Delhi-based trade expert said.

Services trade a prime mover of global growth: Prabhu

Commerce Minister Suresh Prabhu raised India’s concerns with nations looking to bypass the World Trade Organization while creating trade norms, at the 7th Asia-Europe Meeting in Seoul last week. Prabhu also underlined the importance of pushing services trade as a prime mover of global growth. 

Established in 1996, the grouping is a platform for non-binding discussion on economic and trade issues. It currently has 51 nations from the European Union and South Asia. India stuck to its position on treating development issues as a priority in trade talks and said e-commerce cannot be seen only as a tool for market access by developed nations, a senior official said.