The Economic Times (India)
By the ET Bureau
August 8, 2009

NEW DELHI: India and South Korea signed a comprehensive economic partnership agreement on Friday which will make Korean consumer products and
auto-parts cheaper in India.

The deal excludes fully built-up vehicles, and provides for easier movement of contractual service providers and professionals between the two countries and treatment of investments from the one another’s country at par with domestic investments.

This is the second CEPA signed by India, the other being with Singapore. This is also India’s first bilateral trade agreement with an OECD country.

As per the agreement, South Korea will eliminate duties on 93% of its industrial and agricultural products and India will do the same on 85% of its goods. India has excluded sensitive items farm products, textile items and built up automobiles from tariff elimination commitments. Duties will be phased out on most of these products in the next eight years.

The Indian subsidiary of Korean electronic goods manufacturer, Samsung India, pointed out that the pact will further strengthen business relationship between the two countries. “It will become easier to get new technology and innovative products into the country. Besides, the move will attract more Korean investments into India and vice-versa,” Samsung India deputy managing director R Zutshi told ET.

South Korean auto manufacturers with operations in India, too, are celebrating the pact as gradual elimination of the 12% duty on auto components would considerably bring down their input costs.

“It will make us more price competitive. Though the actual benefits of the FTA will result in a few years, but the reduction in duties on components and other automotive parts will bring down their effective prices and help create price advantage from our Indian operations,” Hyundai Motor India spokesman said.

The Indian industry is looking at the pact as an opportunity to bridge the bilateral trade deficit in favour of South Korea and improve export of services.

“We have projected a doubling of trade between India and South Korea within the next 5 years. Of the $10.2 billion bilateral trade for the period April 2008-February 2009, India had a deficit of $4.6 billion with Korea and this imbalance has to be corrected through greater market access for exports from India, said Ficci secretary general Amit Mitra.

Liberalisation in movement of service professionals is among the major gains expected for Indian industry out of the India–Korea CEPA, CII director general Chandrajit Banerjee pointed out. “India has a comparative advantage in services, such as IT/ITeS, Educational Services etc. We welcome the market access provided by Korea for Indian service providers”, said Mr. Banerjee.

CII expects Korean investments to flow into sectors like chemicals, food processing and metals. Both countries have committed to provide national treatment and protect each other’s investments to give a boost to bilateral investments in all sectors except these specifically exempted from it, an official release said.

The CEPA will come into force after it is ratified by the Korean National Assembly and the notifications to bring it into effect are made by the two countries.