INDIA-KOREA - Asia-Pacific Business and Technology Report

INDIA-KOREA
Glorious Past Bright Future
Korea-India Trade and Investment Leaps Ahead
by Don Kirk
The focus of free trade
agreements between
Korea and other
countries has been on deals
reached with the European
Union and the United States.
© pib.nic.in
The Union Minister of Commerce and Industry, Shri Anand
Sharma greeted by the South Korean Trade Minister, Mr. Kim
Jong Hoon during the signing of the Comprehensive Economic
Partnership Agreement (CEPA) between India and Republic of
Korea, in Seoul on August 07, 2009.
Actually, however, before finalizing those
agreements, Korea in August 2009 signed
a free trade deal with India that’s known
not by the initials ‘FTA’ but as ‘CEPA’, or
the Comprehensive Economic Partnership
Agreement. Its purpose was to get rid of 90
percent of the tariffs on imports into Korea
from India and 85 percent of the tariffs on
Korea imports into India within a decade.
Three years after conclusion of the deal,
the record shows that it’s been a great success
– more successful perhaps than that
of better-known FTAs between Korea and
much larger trading partners. “The initial
impact of CEPA has been very encouraging,”
said a report by the Indian embassy in Seoul.
“Bilateral trade crossed US$20.6 billion by
the end of 2011, registering a 70 percent increase
over a two-year period.” That figure is
spectacular considering that two-way trade
a decade earlier, for 2002, came to US$2.6
billion – and was just US$530 million a decade
before that. The embassy reported that
Indian demands “for a wide range of goods
and services” was “expanding rapidly” in
keeping with the average eight percent annual
increase of the Indian gross domestic
product over the previous five years.
With India’s GDP “poised to reach US$2
trillion by the end of the year,” said the embassy
report, India was expected to become
“the third biggest economy in the world by
2030.” South Korean entrepreneurs, it said,
had been “quick to recognize the great potential
of the Indian market comprising 1.2
billion people and a 300-million-strong middle
class, endowed with excellent buying
power.” At the same time, India would “also
benefit from CEPA” thanks to provisions
under which “professional workers such as
computer programmers, software engineers
and English-language teachers, etc.” could
obtain temporary visas to live and work in
South Korea. All told, said the report, “163
such professions would be allowed access to
the Korean services market.” Thanks to this
provision in CEPA, more than 1,000 Indians
have come to Korea to work for mostly major
companies while another 500 are studying
and doing research at Korean universities
and think tanks.
In regular meetings between Korea’s
trade minister and India’s commerce minister,
the mood surrounding CEPA has
been totally upbeat. The adjective “historic”
comes to mind in any description of
the deal. One of the more notable aspects
of the agreement was that it was the first
ever reached between South Korea and one
of the BRICs – that is, Brazil, Russia, India
and China – all huge economies outside the
sphere of what have long been regarded as
the more “advanced” economic powerhouses
of western Europe, North America and Japan.
Equally important, Korea was only the
second country after Singapore – and the
first member nation of the OECD, the Organization
for Economic Cooperation and
Development-- with which India had signed
such a deal.
The agreement “signifies the highly complementary
nature of the two economies,”
said Korea’s trade minister, Kim Jong-hoon,
at the time of the signing. “CEPA sends the
message to the world that the two countries
are committed to free trade and are against
protectionism.” Moreover, he observed,
“The Indian economy has a huge economic
growth potential, considering that it has
one-sixth of the world`s population” and
“also has the fourth-highest GDP purchasing
power parity.”
India’s commerce minister, Anand Sharma,
was, of course, duly amazed by “the astonishing
growth of Korea” from the ashes
of the Korean War. Aggressive Korean industrial
investment in India was clearly the
reason for India’s overwhelming interest in
close commercial ties with Korea. One had
only to look at the records of POSCO, whose
project to build a steel plant in India represents
the largest ever foreign investment
in the country. Another highly visible Korean
name, Hyundai Motor, which opened
its plant in Chennai in 1995, competes to
dominate the Indian compact-car market
while also exporting several hundred thousand
cars a year to Europe from its Indian
plant. LG and Samsung Electronics have
plants in the New Delhi metropolitan area,
their names firmly implanted like Hyundai
in the Indian subconscious.
Against that background, it’s easy see
why India placed high priority on tightening
its Korean bond. Such “significant investments
and presence in the Indian economy
have helped India become a manufacturing
base,” said Sharma. He called CEPA “a strategic
step forward” – that would “also connect
both countries with other major Asian and
other major economies.” The agreement, he
said, was “just the beginning” of a relationship
that’s already exploding with bilateral
trade expanding by more than US$3 billion
annually.
At a luncheon in Seoul, Sohn Kyung-shik
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of the Korea Chamber of Commerce and Industry
elaborated on the benefits of CEPA
for both countries. CEPA would “not only
expand trade volume but will also increase
investments in India by our companies in
the manufacturing and services sector,” he
predicted. “Both sides can create more opportunities
for growth if the competitiveness
of Korea’s electronics, telecommunications,
automobile, steel, shipbuilding and
construction sectors is well combined with
India’s top-class human resources and huge
domestic consumer market.” An official at
India’s commerce and industry ministry
agreed, saying the deal would bring about
“more integration to a developed nation
like South Korea” – and was “also expected
to encourage South Korean auto firms to invest
more in India and see it as an export
hub.”
The agreement in a real sense climaxed a
process that began to take off in the depths
of the 1997-1998 economic crisis when leaders
and planners for the great South Korean
conglomerates, known as chaebol, began
seeing India as a potential market at a time
when the need for expansion and diversity
was paramount. The fact that trade and investment
with China were rapidly increasing
gave rise to the question, Why not India,
whose population of more than a billion
ranked second only to that of China.
The pace of cooperation and negotiations
for a deal quickened after the late Roh Moohyun,
then the South Korean president, visited
India in 2006. While Hyundai, LG and
Samsung, among others, were investing
in India, Tata Motors took over the commercial
vehicles sector of Daewoo Motors,
a casualty of the economic crisis. Those
and other investments were made possible
when negotiators agreed that Korean and
Indian investors could own up to 65 percent
of equity in firms in each other’s country --
no need to quibble about who was in charge
as in the 50-50 or 51-49 deals that so often
create problems among investors.
At the same time, the agreement carefully
skirted some of the most contentious
nationalist issues that typically bedevil attempts
at coming to terms. For now, and
probably for many years to come, both
countries can maintain barriers to farm and
fishing products and mining – all seen as
the birthright of the people of both countries.
There will be no need to worry about
whether Indian low-priced rice will undersell
Korea’s high-priced rice, and no one will
be concerned about meat products infected
with mad cow disease. Bitterness over those
products permeates trade discussions with
the United States, even though the Korea-
US FTA leaves alone the hypersensitive
question of rice, the lifeblood of the southwestern
Cholla provinces that are often at
odds with the rest of the country.
Nor can politicians risk the fallout of
takeover of mining interests that nationalist
elements always perceive as a challenge
to basic sovereignty and national pride. Textiles
were also excluded, considering the
huge importance of cheap clothing to the
people of both countries and the risk that
Indian-made garments, stitched together by
extremely low paid workers, would sharply
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