India gained from trade pact despite Korea's competitive edge: Govt

Contrary to the perception that India has not gained from the free trade pact with South Korea, a government study shows New Delhi’s exports of aluminium and man-made yarn, among other zero-tariff items, has seen a rise since the pact came into being seven years ago. 

However, Korea has had a higher competitive advantage compared to India, shows a first-of-its-kind analysis of the Comprehensive Economic and Partnership Agreement (CEPA) between the two nations, which will now form the basis for talks to upgrade the pact. 

“Korea has gained a higher relative competitive advantage as compared to India. This is due to India’s higher Most Favoured Nation rates, which translate into a higher margin of advantage to Korean suppliers,” said a government official.

Aluminium and its product exports increased from $113.12 million in 2009-10 to $538 million in 2015-16, while that for man-made yarn exports rose from $4.22 million in 2009-10 to $63.23 million in 2015-16. 

At the same time, there has been a shift in the commodity basket for imports, after CEPA, with many principal commodities being replaced by new ones. Iron and steel, for instance, showed a rise in imports from $1.12 billion in 2009-10 to $1.8 billion. Plastic raw material imports rose from $504 million in 2009-10 to $1.06 billion in 2015-16. 

The report, prepared over eight months, was presented to Commerce Minister Suresh Prabhu. While analysing the trade prospects for a product, the report not only brings out the India-Korea trade trends but also Korea’s product trade with the rest of the world. “This allows for greater understanding of the competitive advantages at a global level and the nature and quality of trade engagement with Korea,” said one of three researchers working with the Ministry of Commerce.

The study, carried out internally by foreign trade (NEA) division research associates, would help in superior trade negotiations, said another official. 

The report with numbers till March 2016 relied not only on publicly available data but also on Indo-Korea trade data that was first exchanged with the Korean Customs in 2016. The gains of India and Korea CEPA signed in 2010 has been a debatable issue since the domestic industry argues that it had not benefitted much from it.

The report covered products ranging from merchandise trade to the services sector under the CEPA. It also analysed a wide description of the investment trends. To enable superior understanding of the CEPA trade arrangement, various indices have been computed, for example, Trade Openness Index, Trade Complementarity Index and Hirschman Herfindahl Index. These indices provided an insight into the size, importance, composition, and growth of trade exchanges between India and Korea.

Services trade has not improved much between the two countries so far despite the complementarities and services forming a large part of the GDP of both economies. The volume of trade is small, as India’s exports to Korea account for only 1 per cent of the country’s total services exports. The English programme in Korea has, however, seen a push since Koreans are keen to acquire English language skills. 

The study shows that a partnership can emerge, wherein Korea’s E2 visa requirements include and recognise India as a ‘Native English Speaking’ country. 

On the foreign direct investment front, the report indicates that there has been a marginal increase in Korea’s investment inflows into India. While during 2013-14 and 2014-15, it remained marginal, primarily because of the global economic downturn, initiatives like opening up of a Korea Plus Cell to facilitate investment in India helped.

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