India gears to reduce deficit with South Korea; trade pact under review

KEY HIGHLIGHTS

• Commerce Ministry has called a meeting of Export Promotion Councils (EPCs) and industry captains on September 11 to find out issues hindering exports from India to South Korea

• Comprehensive Economic Partnership Agreement (CEPA) is under review since trade deficit is currently in favour of South Korea

• In 2019, exports from India accounted for $5.6 billion while exports from South Korea stood at $15.1 billion

• Trade deficit has narrowed in the January-June period of 2020 as exports from South Korea slumped primarily due to coronavirus pandemic

With balance of trade continuing to be in favour of South Korea, Commerce Ministry has called a meeting of Export Promotion Councils (EPCs) and industry captains on September 11 to find issues hindering exports from India to the East Asian nation.

The move assumes significance as India is in the process of reviewing the bilateral trade pact with South Korea to protect interest of local traders and industry. "There is a meeting scheduled on Friday. The trade deficit is currently in favour of South Korea and so the Comprehensive Economic Partnership Agreement (CEPA) is under review. The Commerce Ministry is holding the meeting with exporters to know as to why our exports are not growing," said an industry executive.

"The Ministry wants to know if there are trade barriers or some testing norms that are impeding the growth in exports from India," he added. The bilateral trade pact CEPA, put in place in 2010, has spurred the trade and investments between the two countries but Korea has had clear edge. In 2019, exports from India accounted for $5.6 billion while exports from South Korea stood at $15.1 billion.

Major items exported from India to South Korea are mineral fuels/oil distillates (mainly naphtha), cereals, iron and steel. As against this, Korea's main export items are automobile parts, telecommunication equipment, hot rolled iron products, petroleum refined products, base lubricating oils, mechanical appliances, electrical machinery & parts, and iron and steel products.

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Prashant Patel who runs two chemical factories in Gujarat and exports to South Korea said that in case of various raw materials Chinese exporters get preference over Indian firms because of price advantage. "With government capping export benefits under Merchandise Export from India Scheme (MEIS), Indian firms would be in more disadvantageous position," said Patel, Director of Prashant Industries.

Korea's exports to India stood at $5.36 billion in January-June 2020, down 33% from the same period last year as coronavirus pandemic took heavy toll on the bilateral trade. However, Korea's import from India fell by a lower 5.3% to $2.59 billion and as a result trade surplus narrowed to $2.76 billion which was down by nearly half compared to last year.

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"In particular, Korea's exports to India declined dramatically compared to last year's levels of trade, declining by 60% in April, 72% in May which was the worst contraction since May 2009 with factory shutdown and delay of construction projects due to the impact of COVID-19 outbreak. But the rate of contraction in exports slightly eased in June since the nationwide lockdown was lifted," South Korean embassy said in a note on bilateral trade.

Meanwhile, eight rounds of negotiations have been completed for review of the India-South Korea CEPA which started in 2016. India has also taken up the review of India-Japan CEPA and India ASEAN free trade agreement (FTA) with its trading partners.

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