India is seeking substantial duty cuts on a wide array of exports to South Korea as the country embarks on a review of its free trade agreement with the Asian economic powerhouse. India’s aspirations encompass tariff reductions on agricultural products, textiles & apparel, pharmaceuticals, electronics, and petrochemicals, among other goods. Simultaneously, South Korea has expressed a demand for enhanced mobility access for its professionals, according to two individuals privy to the developments.
The Indian delegation, spearheaded by the commerce ministry’s additional secretary Anant Swarup, is actively engaged in negotiations surrounding the Comprehensive Economic Partnership Agreement (CEPA) in Seoul. The CEPA was initially signed by South Korea and India in Seoul back in 2009, with the objective of amplifying economic exchange and streamlining trade between the two nations. This agreement, meticulously negotiated over 12 rounds spanning more than three years, entered into force in 2010. Currently, it is undergoing its inaugural review from July 17th to 19th.
India has also asserted a need for expanded market access for specific products, including steel, rice, and shrimp, as per the first individual cited earlier. “Indian exporters confront various non-tariff barriers within South Korea, encompassing stringent standards, regulations, and certification requirements. These barriers pose significant hurdles to the penetration of Indian goods into the South Korean market,” this individual elaborated. “Challenges exist in securing enhanced market access for Indian agricultural products such as shrimp, rice, steel, pharmaceuticals, and services within South Korea. Indian businesses are seeking more favorable terms to engage in effective competition within these sectors,” the same source emphasized.
South Korea has implemented an import quota of 500,000 tonnes for rice. Out of this allocation, 480,000 tonnes have been assigned to five countries, including China, Australia, the US, Thailand, and Vietnam. The remaining 20,000 tonnes are collectively allocated to all other countries. “They have relegated India to the ‘others’ category. We are requesting the inclusion of India in the country-specific category or an increase in our quota,” stated the second individual cited above. “South Korea levies an import duty of 513% on rice. Furthermore, there is a 5% import duty imposed on shrimp,” this person added.
Indian agricultural produce, vegetables, and spices encounter higher tariffs and stringent sanitary and phytosanitary standards, negatively impacting market penetration. Meanwhile, Indian exports to South Korea, such as automobiles, auto components, pharmaceuticals, textiles & apparel, are adversely affected by higher tariffs compared to the tariffs imposed on South Korean textiles entering India. Similarly, Indian electronics and electrical equipment manufacturers face competitive disadvantages stemming from higher tariffs and the advanced technological standards demanded by the South Korean market. Spokespersons for the commerce ministry and the South Korean government have not responded to emailed inquiries.
India’s key trading partners in Asia include the ASEAN, Japan, and South Korea. However, India’s trade balance with all these countries/regions exhibits a deficit, with imports surpassing exports. Mint reported on April 17th that India’s 2011 free trade deal (FTA) with Japan is poised for a review in the upcoming months, with New Delhi aiming to minimize the trade deficit with Tokyo. “India’s key FTAs with ASEAN, South Korea, and Japan have demonstrated a significant increase in trade deficits and a lower growth rate in exports relative to imports,” stated economic thinktank Global Trade Research Initiative (GTRI) in a recent report. “The analysis of India’s three key Free Trade Agreements (FTAs) with ASEAN, South Korea, and Japan, signed in 2010-2011, reveals two primary trends in trade performance. Firstly, India’s merchandise trade deficit with these partners escalated significantly beyond its global trade deficit…Secondly, India’s exports to these FTA partners have expanded at a slower pace compared to its imports,” GTRI further added.
During FY24, India’s exports to South Korea reached $6.42 billion in value terms, representing an annual decline of 3.57%. Conversely, imports from the Southeast Asian country amounted to $21.14 billion, registering an annual decrease of 0.43%. The trade deficit for FY24 stood at $14.72 billion. The CEPA agreement encompasses trade in goods, investments, services, and bilateral cooperation in areas of mutual interest. “The CEPA aimed to enhance economic exchange and facilitate trade between the two countries,” remarked Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI). “However, over the past 14 years since the inception of the CEPA, India’s trade deficit with S. Korea has consistently grown. Furthermore, Indian firms have encountered various challenges related to market access and non-tariff barriers,” he added.
