Date:09/10/2004 URL: http://www.thehindubusinessline.com/2004/10/09/stories/2004100900060800.htm

Back Seoul mates

IT IS NOT surprising that Seoul is interested in a Free Trade Agreement (FTA) with India, along the lines of the one signed between New Delhi and Bangkok, the specific, unstated, objective being to help South Korean companies sell their products in even larger volumes in the vast Indian market. Indeed, the proposal for an India-South Korea FTA has specifically been suggested by South Korea, the proposed agreement obviously being a part of the larger comprehensive economic partnership mooted a la that being worked out between Singapore and New Delhi. India's response has reportedly been one of cautious welcome. Rightly,the offer of an FTA has the potential to be a bargaining counter to get South Korea to lower, if not eliminate, a number of non-tariff barriers that bedevil Indian exports.

As Seoul sees it, India has the potential to be developed into a rich market for a number of "Chaebols" which have spread their tentacles the world over. Already, conglomerates such as Samsung, Hyundai and LG are operating rather successfully in India, their investments running into billions of dollars. LG India is on an expansion spree, with the objective of becoming a $10-billion company by 2010; 30 per cent of its production in India is directed at the export market. Samsung's turnover this year is expected to touch the billion-dollar mark, India being marked as one of the six strategic locations for the company's global operations. These primarily FMCG companies, along with the automobile giant Hyundai, are already operating in India. But the Koreans are dynamic players. They want to get into India on an even larger scale and have said openly that the core sector would be their next preferred target. Among other conglomerates, Posco aims to set up shop in Orissa, the current plans entailing an investment of $8.4 billion over a decade to set up a 10-million-tonne integrated steel unit which, again, will have the export market as an important part of its plans.

Where does all this leave India in the evolving economic partnership with South Korea? Clearly, in this economic battle, New Delhi is the underdog — India suffers an annual trade deficit and South Korean investment is the fifth largest in India and is growing fast — and will have to extract every pound of flesh it can to assist Indian industry sell its products in South Korea. An important, attainable part of the objective is getting Seoul to lower the existing non-tariff barriers (in the shape of the stringent sanitary and phyto-sanitary regulations in force) on Indian imports, which cover agri-products, dyes, cotton yarn, fabrics, iron, steel, minerals, etc. Indian software exports hold out good potential and an effort should be made to get preferential treatment to cash in on the advantage. But it would be a mistake to focus on the quid pro quo principle because, quite simply, South Korean enterprise is far more efficient than its Indian counterpart. There can be no compromises on forging the best deal for Indian exports, even while keeping in mind how the expanding South Korean investment in India can be put to the best use for the consumer and the exchequer. An FTA should be seen merely as a tool to attain this larger objective.