A fish variety that didn’t let South Korea CEPA reel it in
South Korea offered India zero-duty access for a fish variety, Alaska pollock, as part of a free trade agreement (FTA) signed seven years ago. Interestingly, this particular species of fish is not even available in India to export.
It is among the one-fifth of product lines on which South Korea eliminated duty for India in the FTA that are of no significance to New Delhi, supporting criticism that not much study or analysis went into negotiating such pacts by the previous United Progressive Alliance regime.
Incidentally, shrimps and prawns are the largest export item to South Korea from India but do not enjoy any tariff concession in the FTA. However, Vietnam adds three times the value to Indian squids and shrimps and re-exports them to South Korea. “Specifically for shrimps, it (Vietnam) repackages India’s exported products into ‘shelf-ready’ shrimp in order to increase its value,” reveals an internal study conducted by the department of commerce.
India has been able to utilise just about 49.5 per cent of the Comprehensive Economic Partnership Agreement (CEPA) till 2015, the study states. It cites non-tariff barriers, lack of awareness, difficulty in obtaining rules of origin certificates, and low most-favoured nation (MFN) rates in South Korea as the key reasons for the slow pick-up in trade through the preferential route.
“South Korea is a smart negotiator, having successfully concluded pacts with the US and the European Union (EU). Its FTAs with the US and the EU are much better than the one signed with India, with much bigger market access. So it is natural that South Korea will have better trade relations with those countries,” said Arpita Mukherjee, professor, Indian Council for Research on International Economic Relations.
The utilisation level for South Korea was even lower at 31.5 per cent, though in value terms at $4.13 billion in 2015-16, it was much higher than what India could utilise at $2.11 billion. The utilisation level reflects the extent to which an FTA partner is able to use the tariff concessions available in the agreement. There is, however, a discrepancy in the utilisation estimates by India and South Korea. According to South Korean Customs, India’s utilisation rate for its exports was 67 per cent in 2014, while according to India’s calculation, it was 35 per cent. “This discrepancy is also due to the difference in the methodology adopted,” says the report.
India agreed to eliminate duties on 70 per cent of products imported from South Korea over eight years from 2010. South Korea, in turn, agreed to remove duties on 86 per cent of products imported from India.
However, four per cent, or 332, product lines offered at zero duty by South Korea are such that India neither exports to South Korea nor to the rest of the world. Interestingly, even South Korea has not imported these from the rest of the world between 2013-14 and 2015-16 (the period taken for study). These lines primarily fall in the category of photographic or cinematographic goods, pharmaceuticals, nuclear reactors, boilers and machinery.
Another 15 per cent, or 1,250, zero-tariff product lines are such that are not exported by India either to the rest of the world or to South Korea, rendering them of no use to New Delhi. However, South Korea imports these from the rest of the world. These items fall in the category of toys and games, marine products, boilers and electrical machinery.
India and South Korea are holding negotiations to upgrade and review the FTA signed in 2009 and implemented from 2010. South Korea feels that Japan received higher duty reductions since its pact was signed later when the duty was already low, so the phased reduction is faster for Japan.
Highlighting gaps in implementation of the FTA, the study shows that 43 per cent, or 3,702, product lines that have free-market access are of importance to India but face significant non-tariff barriers. ”These are the lines where India is facing sanitary, phytosanitary and technical barriers, which need to be addressed under the CEPA review,” the report says.
Gems and jewellery exports to South Korea declined significantly after the CEPA came into force as Seoul imposed a 26 per cent luxury tax on jewellery. “With most South Korean diamonds and jewellery being sourced from India, this has acted as a severe non-tariff barrier,” the report says.
It adds that India’s pharmaceutical products surpass World Health Organization standards and, hence, greater market access can be granted by South Korea to them.
Besides, stringent non-tariff barriers in agricultural and marine products have affected exports from India. Indian mangoes are expected to reach South Korean shelves but after a stringent pest risk analysis.
Another 263 product lines are those where both India and South Korea are competitive producers, limiting the scope for bilateral trade.
This leaves 35.1 per cent, or 3,009, product lines where substantial trade takes place, which India exports not only to South Korea but also to the rest of the world. Of the $ 616 billion worth of goods imported by South Korea from India, $586 billion were made up of these products.
In fact, South Korea reduced MFN rates to zero after it signed the CEPA, offsetting the competitive advantage India could have gained in products like petroleum, acyclic hydrocarbons, pig iron, and flat rolled products of iron and steel.
Besides, delays in issuing certificates of origin by the South Korean export inspection agency has forced exporters to ship their goods bypassing the FTA route.
While South Korea has signed 10 FTAs after its pact with India, including those with the EU, Canada, Australia and New Zealand, India has concluded agreements with two countries, Japan and Malaysia.
The government is conducting a review of FTAs, including those with Japan, Association of Southeast Asian Nations, and Singapore, to assess their effect on the country’s exports and investments and to chart a strategy for future negotiations.
Ajay Sahai of the Federation of Indian Export Organisations says India can flag these issues during the review negotiations. “One needs to see if these product lines will be of any use in the future,” he says.