Indo- Korean Trade Relationship (text)

Era Business School, New Delhi Assignment : International Economics

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Submitted by :- 0121pg014 Colonel Ajay K Raina, SM 25 December 2013

INDO-KOREA RELATIONS (with special focus on bilateral trade and economic relationship)

The Preliminaries

0.1 Introduction

Republic of Korea (RoK) or South Korea, as it is usually referred to, lies at the

southern tip of Korean Peninsula that extends off mass of Asia. With land boundary

only with North Korea, RoK is surrounded by sea on three sides with Japan, Taiwan

and China making a ring across Sea of Japan, Korea Strait and East China Sea. Not

to be misled by its geographic size, RoK is 11th largest economy of the world and its

expertise in the field of technology is its main strength in international arena.

(Map of Korean Peninsula; source Google Maps)

0.2 Objective

Objective of this paper is to study the relations between India and Korea with

special focus on bilateral trade and economic relationship.


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0.3 Scope

The paper would attempt to touch upon international relations between the

two nations and then narrow its focus on economics and trade. The layout of the

paper is as under:-

(a) Part 1 – Historical perspective (pre-modern times till 1974).

(b) Part 2 – Building up of trade ties (1974 – 2009).

(c) Part 3 – New surge (2009 till date).

(d) Part 4 – What lies ahead?

(e) Part 5 – Conclusion.

PART 1 – HISTORICAL PERSPECTIVE (PRE-MODERN TIMES TILL 1974)

1.1 Pre-modern Times

Bilateral relationship between at least one kingdom of present day India and another of present day Republic of Korea (RoK) date back to pre-modern day history with a princess from Royal Mishra family of Gaya travelling all the way to some location in then undivided Korea, way back in 48 AD. Though a tale connected with her dreams urging her to travel by sea all the way to Silla kingdom in Korea is often cited by many historians, the discovery of some of the articles, bearing the seal and emblem of Mishra dynasty, in Korea does confirm the event and points towards trade relations between the two kingdoms. According to historical evidences, since 4th century AD, monks and traders kept on visiting the two peninsulas to exchange religious teachings as also the trade. Such interactions between and visits of monks from one country to the other one continued till the early 14th century when state supported the Confucianism and Buddhist monks were not able to sustain the resources and interests needed to visit India. Around the same time, era of Delhi Sultanate also started in Indian history and somehow the Buddhism was not able to attract as many people as it used to earlier. The ebb of Buddhism in both the countries around the same time made it difficult to sustain the exchange of visits from the monks. According to the records, the last Indian monk who visited Korea was Chikong in the early 14th century during the Koryo period. During the Chosun Dynasty (1392-1910) in Korea and in the last phase of Delhi Sultanate (1210-1526) and Mughal Dynasty (1526-1707) in India, there is almost no evidence of interactions between Korea and India.

1.2 Colonial Period of India

Almost concurrently with the establishment of colonial rule in India, Korea also came under Japanese occupation and both the countries remained embroiled in many important issues than bilateral exchange of trade and culture. However, during India and Korean freedom struggles, there are evidences that a ‗distant and fading memory‘ of each other kept on flashing in writing of Mahatma Gandhi, Jawaharlal


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Nehru, Rabindranath Tagore and Rahul Sankrityana. Rahul Sankrityana, a noted Buddhist scholar of India, was amongst the few Indians to have traipsed the path to Korea in 1930s. Although, the Korea did not get any attention in the various Indian National Congress (INC) resolutions, Nehru once wrote that Japanese colonial rule in Korea was a ‗very sad and dark chapter of history‘. Understandably, from the Korean side, almost there is no reference of India during the colonial period, except few reference of Indian freedom struggle in newspapers like Donga Ilbo because of intensive operation under Japanese colonial rule.

1.3 World War II and Thereafter

Korea had a turbulent inning around middle of the previous century and India had a role to play in the larger scheme of things. In the aftermath of the Japanese occupation of Korea which ended with Japan‘s defeat in World War II in 1945, Korea was divided along the 38th parallel north in accordance with a United Nations arrangement, to be administered by the Soviet Union in the north and the United States in the south. The Soviets and Americans were unable to agree on the implementation of Joint Trusteeship over Korea. This led in 1948 to the establishment of two separate governments, each claiming to be the legitimate government of all of Korea. Eventually, following the Korean War, the two separate governments stabilized into the existing political entities of North and South Korea. India took keen interest in Korea during 1947 to 1954. No doubt there were differences between the both countries about the policy and perception regarding issue pertaining to peninsular, regional and global issues. Indian ambassador to the United Nations, KPS Menon played a key role, as the chairman of United Nations Temporary Commission on Korea (UNTOCK). The commission was formed in 1948 to look at the political situation and possibility of general elections on the whole of the Korean peninsula. The next phase of interaction between Korea and India began with the emergence of the Korean War on the peninsula. India supported the United Nations Security Council resolutions 82 and 83, which were passed on 25th and 27th June 1950 respectively and accepted North Korea to be aggressor. India even supported UNSC resolution 84, which was passed on 7th July 1950 and asked for sending military troops to help South Korea to counter the aggression, with one reservation. India, which just got independence, did not want to have military commitment overseas and so it agreed to send only its medical and humanitarian assistance unit under the UN command. Accordingly, the 60th Indian Parachute Field Ambulance of Indian Army Medical Core was sent to Korea.

When the Armistice Agreement was signed in 1953, Vijay Lakshmi Pandit was the chairman of the 8th Session of the United Nations General Assembly. To safeguard the POW and execute the actual repatriation of them, an Indian Custodial Force (CFI) was organised. India played significant role during the Korean War years, though not taking a definite position in favour of South Korea. Indian neutral stand during the Korean War period was, though misunderstood by South Korea, the other major powers of the world recognised it by entrusting India to be the chairman of NNRC ( Mr Menon) and organising CFI were clear evidence of recognition of Indian neutrality.

After the conclusion of Geneva Conference in 1954, it seems that India and

Korea both had almost no cognizance of each other for almost a decade. Their


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respective domestic and regional issues needed more attention of both the countries which were going through the difficult phase of nation-building and competing with their neighbours and had wars with them. The Cold War politics and different positions, perceptions and priorities of both the countries also became a determining factor in their bilateral relations. India, official proclaimed to be a non-aligned nation in the bipolar Cold War world. Indian Prime Minister Jawaharlal Nehru was a staunch supporter of Non-alignment policy and played a significant role in the establishment of Non-Aligned Movement (NAM). Unlike India, South Korea in the leadership of Rhee Syngh-man signed the Mutual Defense Treaty with the US in 1954. South Korea which hadto suffer heavily during the Korean War had the primary interest in addressing the requirement of its security concerns than the issue of neutrality.

Gradually the models of nation-building adopted by India and Korea also did not offer any point of convergence. Whereas, India opted for a ‗socialist mode‘ mode of development, the Korean model, from the very beginning, was capitalist. Indian adherence to socialism and its better relationship with the Soviet Union was perceived by South Korea as India being closer to North Korea and thus, the relationship between the two countries remained cold. India was an active member of the NAM from the very foundation of the organization and when North Korea was given admission to the NAM, even after the opposition of South Korea, Seoul‘s suspicion about India to be closer to North Korea further strengthened.

The most significant development in the India-Korea relations during the Cold

War days was establishment of Consulate level relations between Korea and India in 1962, which was further raised to Ambassadorial level in December 1973. Noteworthy in this respect is that although there were allegations that India was closer to North Korea, India did not recognise or established diplomatic relations with North Korea before giving equal status to South Korea as well. During the period, it was not that India and South Korea were having any contentious bilateral issue between them. Basically, both the countries were having different orientations and understanding of the international politics of the Cold War days and almost there was no bilateral issue at all between the two countries. So, even if the consulate level relations were established and further enhanced up to ambassadorial level there was hardly any transformation in the relationship of the both countries. Basically, throughout the Cold War, there were differences between the two countries not about the strategies of development, patterns and processes of industrialization, place and role of the respective economies in the world economy but also differences in the nature and source of their security threats. The state of affairs in which there was no place of each other in the cognizance map of each other has also to do with closed economy of India.

Part 2 – Building up of trade ties (1974 – 2009)

2.1 Beginning of a Change Starting from 1962 and till 1973, relations between the two nations did undergo a positive transformation. However, while diplomatic relations began to show promise, there was virtually no direct trade between India and RoK till 1974


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when the first agreement on trade (Agreement on Trade Promotion & Economic and Technical Cooperation) was signed by the two countries. It was just a humble beginning that finally led to a bilateral trade agreement of 1978 that was a historic development in itself. While approving 36 items of trade from either end, both countries agreed to confer the status of MFN (Most Favoured Status) on to each other. Two snap shots of the relevant schedules showing tradable items have been placed as Annexure 1. As can be seen, the tradable commodities were drawn on comparative advantages of each one and that indicated the commencement of a meaningful relationship between two Asian economies. 2.2 Post Cold War The old cultural and historical relations of India and Korea entered into a new phase when the Cold War structure at the global level started crumbling in mid-1980s. The first evidence of this change could be felt in India-Korea relations, when in July 1985 a convention was agreed upon for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income. In the changing environment, South Korea began reformulating and reorienting its foreign and especially its external economic relations. India also initiated Structural Adjustment Programme (SAP) after a balance of payment crisis in July 1991. The economic reform in India after the crisis led to movement of Indian economic system in the direction of liberalization, privatization and globalization (LPG). Moreover, India also initiated its policy of ‗Look East‖ which emphasized the role and significance of Southeast and Northeast Asian countries in further diversification of India‘s economic relations. After the collapse of the Soviet Union and collapse of communism across the globe, the political barrier which kept South Korea away from a close tie up with India had also disappeared and South Korea tried to seize this new political and economic opportunities. Political and economic interactions between the two countries took a quantum jump in the 1990s. Indian Prime Minister PV Narsimha Rao visited Korea in September 1993 in the first ever visit of an Indian Prime Minister to Korea. In the new phase, the relations between the two countries did not only become deeper but also it became diversified. The visit of Indian Prime Minister was considered to be a turning point in the bilateral relations of India and Korea and could be considered to be the invitation to the first wave of Korean investment in India. On a return visit, South Korean President Kim Young-sam came to India in February 1996 and both countries agreed to set-up a Joint Commission at the Foreign Ministers levels for bilateral cooperation. 1996 also saw the signing of a very important bilateral agreement on ‗The Promotion and Protection of Investment‘.

In the next high profile visit, South Korean Prime Minister Kim Jong-pil visited India in February 1999 just after the stabilisation of South Korean economy after a serious financial crisis. The same year another notable development took place; Indian fifth Polar Satellite Launch Vehicle (PSLV) put the Korean satellite KITSAT-3 (Unibyol) into the geostationary orbit and thus initiating the cooperation of both the countries in space technology. A new thrust to India-Korea bilateral relation was given by South Korean President Roh Moo-hyun, when he visited India in October 2004. During his visit, both the countries agreed to establish a ‗Long-term Cooperative Partnership for Peace and Prosperity.‘ Both the countries agreed to


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enlarge their partnership beyond economy and develop a mutual understanding in the field of defence and maritime security also. In January 2005, the first meeting of India-ROK Foreign Policy and Security Dialogue was being held. At the 2005 East Asia summit, Indian Prime Minister Manmohan Singh announced specifically that the ―Look East‖ foreign policy dictated Indian participation. He declared that policy was an important part of a larger outward looking approach to world affairs, representing ―a strategic shift in India‘s vision of the world.‖ Manmohan Singh was in on ―Look East‖ creation some fifteen years earlier when he served as the powerful Finance Minister under Prime Minister Narasimha Rao (1991–1996). This new foreign policy of that government—and its successors—was largely shaped by economic concerns, specifically the desire for a higher annual GDP growth rate. 2005 re-assertion of ‗Look East‘ policy had a dramatic effect on India-RoK bilateral relations.

(Source: Ministry of Commerce, GOI- Trade Stats)

Nothing could be more exemplary of the fact of growing relationship between the two countries than looking at the growth of bilateral business and trade relationship in that time period. Although the agreement on trade promotion had been signed way back in 1974, the volume of bilateral trade was less than a billion dollar till the liberalisation of Indian economy. The bilateral trade which was a mere $950 million in 1991 reached $1.74 billion in 1994 and $2.63 billion in 2002. Taking a spectacular surge in next three years, the bilateral trade between the two countries then increased around two and half fold in next three years and has reached at $6.71 billion in 2005. In 2005, Indian export to Korea was $2.11 billion and Indian import from Korea was $4.60 billion. With the strong possibility that the bilateral trade would cross the mark of $8 billion in 2006, a study group was established in 2006 to explore the possibility of signing a new and progressive trade agreement. ROK and India signed a Comprehensive Economic Partnership Agreement (CEPA) in Seoul on 7th August, 2009, heralding a new era of greater economic exchanges, between the two countries. Negotiated over twelve rounds, during more


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than three years, CEPA came into effect on 1st January 2010. It committed both countries to lower or eliminate import tariffs on a wide range of goods, over the next 10 years and expand opportunities for investments and exchanging services. ROK agreed to phase out or reducing tariffs on 90 per cent of Indian goods over the next decade, while India agreed to do so on 85 per cent of Korean goods. South Korean business was quick to recognize the great potential of the Indian market comprising of 1.2 billion people and a 300 million strong middle class, endowed with excellent buying power. Indian demand for a wide range of goods and services had been expanding rapidly consequent to the steady GDP growth of around 8% during the preceding five years. The immediate impact of CEPA was very encouraging. Bilateral trade crossed $ 10 billion by the end of 2009.

Part 3 – New surge (2009 till date)

3.1 An Inclusive Build-up Since signing of CEPA in 2009 and establishment of ‗strategic partnership‘ between two nations, relations have been moving on multiple fronts from diplomatic to defence to economic to cultural fields. During this period, a robust exchange of high-level visits emerged as one of the defining features of our special partnership. President Lee Myung-bak‘s State Visit to India in 2010 was quickly followed by the visit of the President of India, Pratibha Patil to Korea in July 2011 and Prime Minister Manmohan Singh‘s visit in March 2012. Nations have witnessed an increase in the Ministerial visits, too. Specifically, on the economic front, two-way trade and investment have witnessed a surge. In the first two years of implementation of CEPA, bilateral trade witnessed almost 70 per cent growth. Despite continuing global economic slowdown, the two-way trade reached 19 billion US dollars last year. The two countries have set a new trade target of 40 billion US dollars by 2015. Korean

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1991 1994 2002 2005 2006 2009

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Bilateral Trade 1991- 2009


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investment in India and Indian investment in Korea has also picked up with bilateral investment amounting to 4 billion USD. Even though POSCO episode (supposedly the biggest single investment by a Korean group in India) did bring in some frustration, the path of progression has been upwards. A glimpse of the latest trade state is as under:-

(Source: RoK embassy in India website)

3.2 Facts and Figures Korean companies have been very successful in India‘s huge market,

comprising a 300 million strong middle class alone, which has excellent buying power. Around 20 per cent of the Indian small car market share is with Hyundai for example, which has in two plants in Chennai, producing more than 600,000 cars per year. Over 50 per cent of market share for consumer durables like air conditioners, TV, washing machines, refrigerators is also with Korean companies like Samsung,


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LG and Hyundai. India exports a number of products like chemicals, yarn, jewellery and raw materials to Korea, including bauxite and iron ore. There is as yet so much more we can do together.

Indian multinational corporations now have a global presence. India received

FDI (foreign direct investment) of US$158 billion in the last ten years while US$129 billion was invested abroad by Indian companies over the same period. The top sectors that attracted FDI equity inflows from Korea are: metallurgical industries (26 per cent); prime mover- other than electrical generators (10 per cent); machine tools (8 per cent); automobile industry (7 per cent); and electronics (6 per cent). Some of the big names like Tata bought out Daewoo trucks in 2004, and Mahindra & Mahindra bought Ssangyong Motors in 2010. Top IT companies from India are present in Korea as well. Indeed, ties are becoming truly multifaceted between India and Korea. Some 2,500 Korean children are studying English in India right now. About 900 Indian scholars are studying science subjects in RoK. India also wants to enhance cooperation in the sphere of space technology and has offered to launch Korean satellites. Despite such developments, FDI (in terms of overall percentages) remains low as far as flow of Korean investments in India is concerned.

Part 4 – What lies ahead?

4.1 The Prospect

An analysis of trade and investment figures would reveal that our current

trade and investment is just a fraction of what we are capable of. For example,

Korea‘s share in India‘s global trade volume is less than 3 per cent, Similarly, India

accounts for only 1.3 per cent of Korea‘s total outbound FDI flow. This clearly

indicates that there is still much to be done. Although bilateral efforts in

strengthening cooperation in the fields of politics and culture have been particularly

successful with the increase in recent exchange of high-level visits and more


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intensified people to people contacts and yet these exchanges by no means have

reached where two nations would like to see them to be.

There is a challenge of a trade deficit that India has been facing, and she is

looking for better access for her IT, pharmaceutical and agricultural products. For

instance, India produces the best mangoes in the world and exports them to the US,

Japan, Europe, and nearly everywhere else. But Koreans are not getting Indian

mangoes. With IT products, India is seeking better access. But these are

negotiations between friends. The commerce and trade ministers meet every year, to

review the implementation of CEPA and examine the need for upgrading. It is a

process. Indian pharmaceuticals are among the best in the world today. They have

the largest number of pharmaceutical products registered with the US FDA by any

foreign country. There is no reason why such feats would not find favours with a

progressive country like RoK.

4.2 Issues

Most of the trade specific barriers have been sorted out through various

treaties and agreements, specifically CEPA and yet there are several non-tariff

barriers that exist in India. These include poor infrastructure, the hiring, management

and dispute settlement mechanism in the case of labour, high production cost, credit

retrieval, local financing and binding system, relatively limited demand, high

competitiveness, government intervention, customs and clearance procedures and

visa related problems. Issues related to the Indian government‘s development,

adoption, and implementation of technical regulations, standards and conformity

assessment procedures have not been very conducive for trade in several products.

Imports of certain products, like electrical appliances, where Korea is very

competitive, are subject to license from the Bureau of Indian Standards (BIS). For

this, BIS needs to first inspect the production facility and then issue a license to the

exporter. According to some foreign companies, licensing and inspection costs

imposed on foreign companies are very high. Some proposed regulations are also

considered a hindrance to trade flows. In services, the barriers are regulatory in

nature. These barriers include limitation on foreign ownership, excessive regulation,

nationality or residency requirements, bias in award of projects, compulsory

registration with local, specific, service provider associations, etc. Cumbersome

bureaucratic procedures, the lack of fear of government action and a clogged judicial

system where cases can linger on for several years, visa related problems etc. have

been the most cited barriers to trade in services.

On the other hand, RoK maintains some standards, technical regulations and

conformity assessment procedures that are burdensome. These barriers mainly

restrict the export of food items that are of interest to India. For instance, the Korean

Food and Drug Administration (KFDA) define product categories narrowly for specific

food additives making it difficult to obtain approval. According to Korean rules and


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regulations, safety and certification have to be conducted by a designated

certification body that must be a ―domestic, non-profit making organisation with

suitable testing equipment and qualified testing personnel‖. Another related problem

faced by exporters is that Korea has non-transparent and onerous labelling

requirements, with frequent changes for health foods which create a lot of difficulty

and enhance the cost of compliance. In Korea, all imported cosmetics are subject to

an import review process by the Korean Pharmaceutical Trade Association (KPTA).

This procedure delays market entry of the products and since KPTA‘s membership

includes competitor manufacturers, the process raises concerns about the ability of

KPTA to protect sensitive information which is required to be disclosed as part of the

import review process.

Apparently, despite all good intentions of RoK and despite all efforts of India

to reach out to RoK, progress has been pretty dismal. What happened with POSCO

in Orissa in 2013, would be cited by many in the years to come.

4.3 The Road Ahead

As discussed in previous sections, there are complementarities between the

two countries in terms of economic structures and future outlook. Any future

agreement should not only focus on increasing trade and investment flows between

the two economies by removing the existing barriers on both sides but should also

emphasise co-operation and technical collaboration in various sectors. Co-operation

is needed especially in those sectors in which trade complementarity is high. And

this should be done through both government and private initiatives. The following

areas can be identified for future co-operation between the two sides:-

(a) Co-operation in the IT sector. The Korean electronic and hardware

industry is well recognised all over the world. Similarly, the Indian software industry

has proved its mettle and is today considered to be among the most competitive in

the world market. So there is complementarity in the sector in both the countries and

scope for future co-operation. If both countries come together and combine their

efforts, it is possible for them to achieve joint leadership in this sector. This is

possible especially in embedded technology which involves integration of both

software and hardware. Another area of co-operation in the IT sector is IT education

and training. Indian companies are endowed with a wide network of world class

training institutions. Korean strength lies in manufacturing, product development and

marketing. If this is combined with India‘s strength in related services, it would be

advantageous for both the countries.

(b) Science and Technology. Science and technology (S&T) is an

area which both countries are already co-operating in. Although there exists an

India-Korea Joint committee on S&T, it is imperative to intensify the co-operation

between various institutions based in the two countries. India is endowed with well-


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educated S&T personnel and Korea has the financial resources; coming together will

benefit both.

(c) Pharmaceutical Industry. From being a major importer of

pharmaceutical products, the Indian pharmaceutical industry has today become a

net exporter of these products. Indian export destinations not only include developing

countries in Asia and Africa but also developed countries such as the US, Canada

and European countries. This proves the strength and overall competitiveness of the

industry. India has both R&D facilities and human capital to leverage. Since Korea is

focusing on R&D in pharmaceutical-related areas, there is scope for co-operation

between the two countries in the areas of clinical trials, vaccines, biotech goods,

traditional medicinal products etc.

(d) Broadcasting. Broadcasting is a growing industry in both the

countries and since there are complementarities in the industry, there is potential for

future co-operation is significant. India is well-recognised among Asian countries for

its content. Korea on the other hand, specialises in dramas and digital and mobile

broadcasting technologies. Hence, it would be in the interest of both countries to

initiate co-operation in the broadcasting industry.

(e) Tourism. Due to the strong, ancient historical and cultural linkages

between the two countries, there is huge potential for enhancing tourism-related

trade and investment flows. If a conducive and facilitative environment is created,

there are possibilities that tourist inflows from Korea to India would not only increase,

there could also be a substantial inflow of investment in the development of various

Buddhist sites spread across India.

(f) Healthcare. Due to liberalisation and the growing interest of the Indian

private sector in healthcare services, the size and capability of the healthcare

industry in India has grown rapidly in the recent past. The strength of the Indian

healthcare industry lies in its quality health professionals who are well-recognised all

over the world. India has also been gaining in importance as a health related tourism

services destination not only among the developing countries but also in developed

countries. Korea‘s healthcare system has significantly improved in the recent past

due to the remarkable progress in medical sciences, quality professionals and

appropriate government policies.

(g) Construction and Related Services. In last few years, the

construction sector has been one of the fastest growing sectors in India. Given the

growing infrastructural demand, the sector is likely to continue its growth momentum

in the coming future. However, because of the Indian construction industry‘s limited

capability and exposure to various kinds of construction requirements, the

government is very keen to enhance the participation of foreign players. This is

expected to not only enhance the industry‘s capacity to deliver high quality projects

within tight timelines but also provide opportunities to Indian companies to acquire


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new construction techniques/know-how. Korean companies are well endowed with

technological capability and their global exposure is also high. Hence there is

tremendous scope for co-operation in the construction industry.

(h) Scope for co-operation in Human Resource Development. The

importance of knowledge in the world economy has been growing in the recent past.

The backbone of the knowledge economy is the supply of quality human resources.

However, due to differences in their demographic stage and investment in human

resources, developing countries differ significantly in their human resource

endowments. Though India has a vast workforce, due to rapid economic growth in

the past few years, many industries face a shortage of skilled manpower. Korea, on

the other hand, because of its different demographics and development stage, faces

a shortage of overall manpower. Korea has long experience in certain industries,

such as electronics, construction and engineering etc., and hence is better endowed

with skills in these industries. And these are the industries, as mentioned earlier,

where the growth rate has been quite impressive in the last few years in India.

Therefore if co-operation is enhanced in this segment, it would be beneficial for both

the countries.

Part 5 – Conclusion

5.1 To Conclude

The historical and cultural relations between the two countries could be still

significant in the 21st century when both the countries have been searching their

roles in the global politics. However, in the recent phase of interactions, it seems to

be less an interaction of two old civilizations and more of two fast growing

economies. Korea and India have recognized the place of each other in their mutual

growth, given the strong complementarities between the two countries. A synergy of

relationship exists between the two countries, in which successful alliance of Korean

capital and technological advancement with Indian cheap and skilled labour power

and vast market would be beneficial for both the countries. Similarly, cooperation

between the technical expertise of South Korean hardware with Indian software

would be beneficial for both the countries in the age of IT revolution. Whereas, India

would get benefited from cooperating with the highly developed and matured

manufacturing sector, Korean collaboration with Indian service sector looks to have

good potentialities. When the world economy is moving from manufacture-based

economy to service-based economy, there could not be denial of the importance of

service sector in future of health of an economy.

Bilateral economic relations between India-Korea have strengthened over the

years, particularly since 1991. However, the current size of trade and investment

between the two countries is low compared to the size and structural

complementarities of the two economies. The increase in merchandise trade

between the two countries has been mainly because of the changing demand


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structures and comparative advantages of both economies in complementary

sectors. While India‘s exports mainly constitute low value-added and industrial

products, India‘s imports from Korea largely consists of relatively high value-added

products. The analysis of revealed comparative advantage at both the aggregated

and disaggregated levels shows that Korea has been specialising in a few products

which are highly competitive as India‘s exports have been more diversified.

Moreover, India shows declining comparative advantage in cotton and textiles, rice

and other primary products. The analysis at the disaggregated level shows that there

are some industries where both countries have comparative advantage in different

products, pointing to opportunities for intra-industry trade. The intra-industry trade

(IIT) analysis shows that IIT is low in the top traded product groups and high in some

products where trading is low. This offers huge opportunity for intra-industry trade if

sector-specific barriers are removed along with general barriers.

Though foreign investment from Korea has increased over the years, the

share in total FDI inflows to India has declined. Further, Korean investment is

concentrated in a few sectors such as the electrical equipment and metallurgical

industries. There are opportunities for small and medium-sized Korean companies to

synergise with Indian SMEs in the areas of semi-conductors, plastics, auto parts,

agricultural instruments, textiles, multi-media, ceramic products, software etc. Since,

development of infrastructure in India is a priority and requires both advanced

technology and huge investment, there is tremendous scope for Korean companies

to participate and collaborate in the infrastructure and construction sectors. Further,

there is tremendous scope for improving trade in services between the two countries,

particularly for India. There are areas such as information technology, science and

technology, pharmaceuticals, broadcasting, tourism, healthcare, construction and

related services and human resource development where collaborative relations can

be further strengthened. The analysis also shows that there exist both tariff and non-

tariff barriers and both countries need to remove sector-specific barriers to improve

trade and investment relations.


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References

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Annexure 1

(Refers to Para 2.1)


17
