India's Trade Pacts With South Korea And Three ASEAN Nations Effective

by Mary Swire, Tax-News.com, Hong Kong

05 January 2010

India’s comprehensive economic partnership agreement (CEPA) with South Korea, as well as its free trade agreement (FTA) with three countries of the Association of Southeast Asian Nations (ASEAN), came into effect from January 1.

The CEPA between India and South Korea - which covers trade tariffs along with other matters, such as investment, services and intellectual property rights - was signed in August 2009. It creates one of the world’s largest free trade areas, with a market of more than 1.2bn people and a combined gross domestic product (GDP) of USD2.1 trillion.

Under the CEPA, up to 93% of South Korea’s and 90% of India’s tariffs, in terms of value will be reduced or eliminated over the next ten years. For example, it has been estimated that tariffs on South Korea's biggest bilateral export, car parts to its car manufacturers in India, will fall to as little as 1% over eight years from the current average of 12.5%.

In particular, it was variously reported that the CEPA will eliminate or reduce tariffs on over 4,400 South Korean products exported to India, including mobile phones and computers, while half of India’s USD4bn exports to South Korea would be free of tariffs immediately.

Certain sensitive goods, such as fishery products and a selection of agricultural products, have been excluded from the terms of the CEPA.

However, it was predicted that the agreement would help to increase the bilateral trade between the two countries from its present USD10bn to twice that amount over the next five years.

South Korea is the second country, after Singapore, with which India has signed a CEPA.

South Korea itself continues to pursue FTAs with the largest economies or economic groupings in the world, including the signed, but not yet ratified, agreements with the US and European Union (EU).

India’s FTA with ASEAN was also signed in August last year, after six years of negotiations. It creates another of the world’s largest FTAs – a market of almost 1.8bn people with a combined GDP of USD2.75 trillion.

The ASEAN-India FTA will see tariff liberalization of over 90% of products traded between the two regions, including so-called “special products,” such as palm oil (crude and refined), coffee, black tea and pepper. Tariffs on over 4,000 product lines will be eliminated by 2016, at the earliest.

It was stipulated that the ASEAN-India FTA would enter into force on January 1, 2010, if India and at least one ASEAN member state had notified completion of their internal ratification process.

In fact, only three of the largest ASEAN countries – Singapore, Thailand and Malaysia – had approved participation by that date. However, those countries already make up over 90% of India-ASEAN USD44bn total trade, and the remaining seven ASEAN members are only expected to take a few months to achieve internal ratification.

India had previously concluded no other trade agreements, apart from its CEPA with Singapore, before the agreements with South Korea and ASEAN. It is now looking at FTAs with the EU, Japan and China.

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