South Korea is aggressively pushing for speeding up negotiations on expanding the existing Comprehensive Economic Partnership Agreement (CEPA) with India. But instead of rushing ahead, New Delhi should pause and take a clear look at where it is heading.
Since the bilateral CEPA was implemented in 2010, South Korea’s exports to India jumped from $10.47 billion in 2010-11 to $16.36 billion in 2017-18. India’s exports to South Korea, however, remained sluggish and increased insignificantly from $3.72 billion in 2010-11 to $4.46 billion in 2017-18. As a result, the trade deficit between South Korea and India increased to a staggering $12 billion in 2017-18.
These are numbers that should not be taken lightly. They show that while Indian businesses have not been able to take advantage of the provisions of the CEPA. But Korean companies have increased their exports taking advantage of the lower duties.
Moreover, much of the Indian exports to South Korea are still taking place outside the CEPA at higher duties. According to various studies, including one by the ADB, the average utilisation of free trade pacts ranges between just 5 per cent and 25 per cent in India. That is mostly because Indian exporters find it too onerous to meet obligations such as rules of origin. Low awareness is another reason for low utilisation.
With lack-lustre growth in India’s exports to South Korea, and much of it happening outside the ambit of the CEPA, there is clearly no point in expanding the pact, until and unless it provides more market access to Indian goods. But that is certainly not going to happen as South Korea has made it clear that it wants increased market access in a number of items including sensitive ones like automobiles and textile that got excluded in the original CEPA.
Agreeing to an Early Harvest Programme for the CEPA, under which India would speedily cut down duties on 11 items and South Korea on 17 items, might have been a diplomatic necessity to mark South Korean President Moon Jae-in’s visit last week. Going beyond it would be foolish.