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#2341, 30 July 2007
Negotiating the CEPA with South Korea
Sandip Kumar Mishra
Lecturer, Delhi University
e-mail: sandipmishra10@gmail.com

On 23 July, India and South Korea began the latest round of negotiations on issues involved in the proposed Comprehensive Economic Partnership Agreement (CEPA) that is scheduled to be signed by the end of 2007. The CEPA comprises of cooperation in services and investments besides trade in goods, and highlights the growing complementarity in India-South Korea trade and business engagements, which have grown manifold from US$950 million in 1991 to US$9 billion in 2006. Korean steel giant POSCO has been working to invest more than US$12 billion in Paradeep, Orissa that would make it be the biggest sum of FDI in India to date. Tata Motors has also invested more than US$102 million in Daewoo Motors. Meanwhile, Korean multinationals such as Samsung, LG Electronics and Hyundai have become household names in India. Even small- and medium-size Korean companies have been doing good business in India. The successful conclusion of the agreement would therefore, herald a new era of free flow of goods, services and labour between India and South Korea.

The proposal to have a bilateral CEPA was first put forth by the South Korean President Roh Moo-hyun during his visit to India in October 2004. Afterwards, India and South Korea established a joint study group to study various aspects of the agreement, finally agreeing to enter into the actual negotiation process in March 2006. Since then six rounds of talks have been held excluding the latest one. The fifth round of the talks on the CEPA was held in Jaipur in January in which the modalities about the agreement were successfully agreed upon. The rather smooth process of negotiation apparently hit a roadblock during the sixth round in April 2007 when doubts were expressed about the possibility of conclusion of the agreement within this year and the Korean delegation expressed its dissatisfaction over India's apprehension about entering into such an arrangement with an OECD member country.

The recent rounds of talks have acquired a special importance as the two countries are negotiating on substantial issues involved in the agreements such as rules of origin (ROO) for agricultural products and processed goods, free flow of labour with capital and technology, and initial tariff offers. Though both India and South Korea have already agreed to make some concessions in the agriculture sector, the details are still being deliberated on. Similarly, although the two countries have discussed the issue of tariff reductions and made initial offers, the details have not been made public so far. During the sixth round of negotiations, both the countries had decided to open up 75 per cent to 80 per cent of the tariff lines for duty cuts and preferential treatment. India has also been interested in pushing forth free flow of not only capital and technology but also labour on which Korea however, seems to have some apprehensions.

Notwithstanding limited progress in the negotiations on these complex and sensitive issues, the talks indicate a mutual determination to enter into a bilateral India-Korea FTA and lays down the modalities and the roadmap through which the final deal can be clinched. Successful conclusion of the agreement would be a leap forward for India because it would be the first time that India has negotiated any form of FTA with an OECD country. It would be a defining step for further negotiations to conclude FTAs with other developed countries keeping in mind both Indian national interests and the opportunities and challenges of globalization.

The most significant achievement of the talks till now has been the realization in the two countries about mutual complementarities. For example, the manufacturing sector of the Korean economy has performed spectacularly whereas the Indian service sector has been the most promising growth engine of its economy. The core competence of Korea in the IT sector is hardware whereas Indian expertise lies in software and programming. Furthermore, the strengths of the Indian economy such as cheap labour and the big middle class market gel quite well with both the capabilities and targets of Korean capital and advanced technology. Thus, economic synergy between India and Korea would carry forward the talks even though there could possibly be a few points of disagreement between them.

Thus, the future of talks on the CEPA between India and South Korea looks to be positive and even though there could be some delay in negotiating the details of the agreement, its potential benefits would propel both the countries to move forward towards conclusion. Moreover, the CEPA could also be a model for other similar negotiations in future.

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