India and Korea plan Free Trade Agreement upgrade as ministries work on 'offer list'

The department of commerce is engaging with different ministries, including heavy industries, steel, and chemicals, to prepare the offer list, which will be part of the negotiations, which are underway.

New Delhi: With talks to upgrade the existing free trade agreement (FTA) moving forward between India and Korea, the department of commerce is engaging with different ministries, including heavy industries, steel, and chemicals, to prepare the offer list, an official said.

Preparation of the list is part of the negotiations, which are underway, for the upgrade of the existing FTA between the two countries, dubbed as comprehensive economic partnership agreement (CEPA).

The agreement was operationalised in January 2010. So far, 10 rounds of talks have been concluded.

The official said both sides have exchanged the request list and "are working on the offer list" and for that the commerce ministry is holding discussions with different ministries, including steel, heavy industries, textiles, chemicals and petrochemicals.

India has sought greater market access for certain products such as steel, rice, and shrimp from South Korea with a view to boost exports of these goods, the official added.

India has flagged issues over Korean firms not buying Indian steel.

The exercise assumes significance as both sides have shared the hope that the CEPA upgradation negotiations would play an important role in strengthening and deepening economic cooperation between both countries.

In such agreements, two or more countries either significantly reduce or eliminate customs duties on the maximum number of goods added between and ease norms to promote trade in services and boost investments.

Both sides review the agreement at a mutually agreed time period.

In general, such review or upgrade exercises include implementation issues, rules of origin; verification process and release of consignments; customs procedures; further liberalisation of trade in goods; and sharing and exchange of trade data.

India has also raised concerns on the growing trade deficit between the two countries. India's exports to Korea dipped to $6.41 billion in 2023-24 from $6.65 billion in 2022-23 and $8 billion in 2021-22.

The imports stood at $21.13 billion in the last fiscal as against $21.22 billion in 2022-23 and $17.5 billion in 2021-22.

According to economic think tank Global Trade Research Initiative (GTRI), India's trade deficit with South Korea increased at a much higher rate compared to its trade deficit with the world.

It said India's trade with South Korea has shown significant changes in the periods before and after the implementation of the CEPA.

The average exports from India to South Korea before the CEPA (2007-09) were valued at $3.4 billion, while the average imports stood at $7.3 billion, leading to an average trade deficit of $4 billion.

Post-CEPA (2022-24), the average exports increased to $7.1 billion, and imports surged to $19.9 billion, resulting in a much larger average trade deficit of $12.8 billion, the GTRI report said, adding this indicates an increase in the trade deficit by $7.2 billion from the pre-CEPA period to the post-CEPA period, marking a 220 per cent increase.

Besides, it said Indian exporters are facing various non-tariff barriers in South Korea, including stringent standards, regulations, and certification requirements and these barriers make it difficult for Indian goods to penetrate the South Korean market.

"There are challenges related to gaining better market access for Indian agricultural products like shrimp, rice, steel, pharmaceuticals, and services in South Korea. Indian businesses seek more favourable terms to compete effectively in these sectors," GTRI Founder Ajay Srivastava said.

There are concerns regarding the rules of origin provisions under the CEPA, which determine the eligibility of products for preferential tariffs, he said, adding that India aims to ensure that these rules are not overly restrictive and that they facilitate trade rather than hinder it.

According to the GTRI, India is looking for greater liberalisation in the services sector, including healthcare and information technology (IT), and easier access for Indian professionals and service providers in the South Korean market.

There is a need for mutual recognition of standards, qualifications, and certifications to facilitate smoother trade and investment flows between the two countries, it said.

It added that while India has granted significant tariff concessions under the CEPA, there is a push for South Korea to reciprocate with more meaningful concessions, especially in sectors where Indian products have competitive advantages.

"Addressing these issues is crucial for India to achieve a more equitable and mutually beneficial trade relationship with South Korea under the CEPA framework," Srivastava said.