Early upgrading of CEPA is key to taking Korea-India ties to next level

• Published date: 02 March 2023
• Publication title: The Korea Times

After establishing diplomatic ties in 1962, economic exchanges started blossoming between Korea and India. Initially, the focus was on textiles, steel and chemicals. A shift came in the 1980s when Korean companies began investing in India's automobile and electronics sectors. Daewoo Motors had already established its first manufacturing plant in India in 1973.

In post-Cold War India, it opened its economy to foreign investments and Korean companies were among the first to enter the new fast expanding market. Seeing the fast-growing economic exchanges, both governments entered free trade agreement talks in the early 2000s. After a long eight years of negotiation, a comprehensive economic partnership agreement (CEPA) was signed in 2009 and came into force in 2010.

However, due to its limited scope, there were several issues. Many non-tariff barriers were not addressed by the CEPA. The growing trade imbalance between them and the absence of many important areas such as investment, intellectual property, and e-commerce meant that the CEPA did not produce the intended results. Both countries started talks to upgrade the CEPA in 2015.

Hurdles blocking the talks

So far nine rounds of talks have been held to find a way to make a mutually beneficial agreement. These talks are focused on improving tariffs on goods and services, investment, and origin rules, among other issues. However, not much progress has been made despite more than eight years of negotiations. There are many hurdles blocking the successful conclusion of the talks.

The trade imbalance is the most significant issue in the CEPA negotiations. India has a large trade deficit with Korea. Many tariff and non-tariff barriers, such as technical regulations and standards are stopping Indian goods from entering the Korean market. Indian businesses find serious difficulties in complying with South Korean regulations and standards due to India's different rules and standards. India cannot agree on CEPA upgrades until issues related to the trade imbalance are fully resolved because it has strong political overtones.

The second most crucial issue between the two is that of automobiles. Korea is asking for a quicker tariff reduction period than is being offered by India. India is also asking for a stricter rule on the origin of automobiles, which requires a higher percentage of locally sourced components. Non-tariff barriers such as testing and certification requirements for automobiles are further sources of...