India has signed a Comprehensive Economic Partnership Agreement (CEPA) with South Korea on August 7. This is India’s second comprehensive deal with any country, the first being with Singapore in 2005. The CEPA is more than a Free Trade Agreement as it covers not only trade in goods but also investments, services and bilateral cooperation in other areas of common interest.
Under the CEPA deal, tariffs will be reduced or eliminated on 93 percent of Korea’s tariff lines and 85 percent of India’s tariff lines. It will facilitate trade in services through additional commitments made by both countries to ease movement of independent professional and contractual service suppliers. 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 those specifically exempted.
The direct implications, which will come into effect over the next few years and are not immediate, of the agreement make Korean consumer products and auto parts cheaper in India. South Korean auto makers based in India have a reason to be happy. The pact will gradually eliminate the 12 percent duty on auto components and bring down input costs.
According to Rajiv Mitra, head of corporate communications, Hyundai Motor India, “This will definitely improve things in the longer term. Components will become cheaper and there will be less pressure on the input cost.” The company likely to benefit the most from this pact is General Motors India, which imports a substantial number of its part from its South Korean counterpart, GM DAT. Hyundai Motor India would benefit to a lesser extent considering that many of its models have high levels of localisation. However, upcoming models like the i30 saloon, which replaces the Elantra in India, would have greater import content and hence HMIL could also benefit from this agreement.