It is now nine years since the South Korea-India Comprehensive Economic Partnership Agreement — a de facto free trade agreement — went into effect. However, while much progress has been made, there is still a long way to go for economic ties to reach their potential.
It was widely anticipated that the CEPA, which came into effect in January 2010, would lead to more bilateral trade and investments. South Korea abolished tariffs on 93 percent of Indian imports and India has done the same on 75 percent of Korean imports.
Besides, the agreement sought to increase the interactive trade account, as it includes investments in various sectors like goods, services and even intellectual property.
They have since set a target to increase bilateral trade to $50 billion by 2030 from around $25 billion last year.
While bilateral trade has no doubt improved, it is still way below expectations.
It is true that large South Korean brands are household names in India and their strength has grown in the years since they began operations there. However, foreign direct investment inflows have been growing at a tardy pace.
The India-South Korea CEPA has certainly helped, according to Rishi Ramachandran, an Indian entrepreneur and CEO of Group IBI, an Asia-focused business intelligence and market development consultancy.
He has lived in Seoul for more than two decades, during which he has followed the evolution of trade ties between both countries and advised organizations on CEPA in particular.
“Rather than an agreement, I would term it a useful mechanism for fostering trade between South Korea and India and for easing trade barriers and tariffs in the long run,” he told The Korea Herald, adding that both sides are trying to access sectors in which they can be competitive.
“But these are subject to progressive easing of both tariff and nontariff barriers. For example, in a sector like pharmaceuticals, both South Korea and India have successful manufacturers of generic drugs, and for whom countries in Africa, Southeast Asia and Central Asia are key target markets. However, the best Indian drug companies can hope for is supplying APIs (active pharmaceutical ingredients) to the Korean pharma sector, as opposed to supplying finished formulations.”
But even then, successful cases are rare and the scope is highly limited since the pharma industry is highly regulated in South Korea with significant nontariff barriers. On the other hand, India could export more food products and consumer products in areas such as coffee, tropical fruits, leather goods and fashion accessories for which there is plenty of demand, he said.
As key economic partners, Ramachandran noted that trade relations are continually improving. However, what India needs is a significant boost in the promotion of Indian brands in South Korea.
“The ‘Made in India’ moniker still has questionable quality and packaging issues attached to it. India needs to address this as a priority and promote well-established brands in South Korea,” he said.
“India needs to realize that South Korea (and most other Asian geographies) is highly brand- and image-conscious. Therefore, Indian products sold here not only have to be of impeccable quality — as they are competing against domestic products as well as products from overseas — but they also need to be packaged well, presented well and marketed well.”
As a case in point he noted Indian mango shipments, which are renowned the world over but can hardly be seen at retail outlets here today, contrary to their sudden surge here in late 2016.
Rather than a single bottleneck, there are two main factors hindering growth of mango exports to South Korea, he said.
One is tariffs since, just like CEPA, South Korea also has a free trade agreement with the Association of Southeast Asian Nations as well as the Regional Comprehensive Economic Partnership that benefit exports from the Philippines and other regional countries.
While CEPA entails gradual scaling down of tariffs on Indian products from 30 percent to zero percent over eight years, the tariff targets with ASEAN are far more aggressive and trade-friendly.
Also, when compared to the Philippines, Vietnam or other Asian countries that sell mangoes in South Korea, India does not have a visible dedicated entity on the ground in Seoul promoting mangoes and Indian agricultural exports.
“A dedicated entity can ensure not just maximization of tariff benefits, but more importantly ensuring maximum front-end promotion in South Korea, i.e. customization in terms of product quality, packaging and selling to the right channels.”
The Agriculture and Processed Foods Export Development Authority of India organizes seminars and promotional events at trade fairs where importers can inquire and place orders. If there was a dedicated team here for promotion year-round, the products could go to the right retail channels. As an example, what Australia does with meat and livestock for promotion in international markets is a good benchmark, he said.
As regards economic areas, Ramachandran noted that the country is already benefiting significantly not just through exports to India, but also through large-scale investments that Korean conglomerates and their supply chain partners have made, be it Hyundai Motor, Samsung Electronics, LG Electronics or Lotte Group.
“India is therefore not only a huge captive market for South Korean consumer goods and cars, but also a huge low-cost manufacturing base for Korean exports to other countries. And it will continue to increase as all of these companies scale up their production, or add new facilities, like the world’s largest mobile phone factory for Samsung that was inaugurated in Noida (near New Delhi) during President Moon Jae-in’s visit to India last year.”
Indian Prime Minister Narendra Modi’s recent visit to Seoul, he said, should by default lead to better ties.
“That said, this visit by Modi was a short one and ostensibly did not include a business delegation from India. So while headline issues and geopolitical climate in the region may have been discussed, in terms of economic ties, this was at best a follow-on to the platform laid by President Moon’s high-profile visit to India in July 2018.”
By Ram Garikipati (firstname.lastname@example.org)