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Effect of India's Expansion of FTA on the Korea-India Trade economic cooperation, trade policy

Author Woong Lee, Choong Jae Cho, YOUNG CHUL SONG, Yun-Jeong Choi, LEE JUNG MI Series 14-19 Language Korean Date 2014.12.30

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Korea and India established their diplomatic ties in 1973 but economic cooperation between the countries began in earnest after India’s economic reform in 1991. In particular, the economic cooperation was intensified as the Indian economy was opened up further and experienced high economic growth since 2000, which led to remarkable success of the Korea-India CEPA (Comprehensive Economic Partnership Agreement) implemented in January 1, 2010. India has aggressively expanded its FTAs as it concluded 13 RTAs (Regional Trade Agreements) with 25 countries and has been negotiating or reviewing agreements with several countries including the EU. Narendra Modi government inaugurated in 2014 has given priority to the quality aspect of FTAs rather than the quantity aspect that was emphasized by the previous government. Prime Minister Modi announced that the FTAs signed by the previous government in the last ten years have benefitted the partner countries but not India in terms of quality and volume of trade. Therefore, it is expected that the Indian government will further pursue its actual benefits with its practical FTA strategies.
This report analyzes the effects of India’s FTA enlargement on the trade between Korea and India. Especially, it focuses on the Korea-India CEPA and the Japan-India CEPA while giving consideration to high competition in the Indian market between Korea and India.
In Chapter 2, this report examines the Indian government’s trade policies including FTA policy. It also compares and analyzes ‘pillars’ including background, merchandise, service, investment, and others among FTAs already implemented by India. Next, it compares the Korea-India CEPA and the Japan-India CEPA in greater detail and presents similarities and differences between the two FTAs, focusing on disadvantages that Korea faces or will face.
In Chapter 3, simulations are performed using the World Bank SMART to analyze how expansion of FTAs by India affect the Korea-India trade and shows changes in import, tariff revenue and consumer surplus of India as well as changes in export by Korea. The report performs simulations not only for the entire economy but also for specific items (HS 2 or 6) and provides estimates for each case.
Using the results from the chapters 2 and 3, the report suggests a method for setting priorities among the list of items in the future Korea-India CEPA upgrade negotiations. The authors hope that the results from this report will be utilized as a useful resource to upgrade the Korea-India CEPA.

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