Introduction and Background
The Comprehensive Economic Partnership Agreement between India and the Republic of Korea is a bilateral trade and investment agreement that marks an important phase in the economic relations between the two countries. The agreement was signed on 7 August 2009 in Seoul and came into force on 1 January 2010. Its entry into force followed more than three years of negotiations that began in 2006 and involved detailed discussions on trade sensitivities, market access, and long-term economic cooperation.
Before the CEPA, trade between India and South Korea had already shown steady growth, increasing from about USD 2.6 billion in 2002 to USD 15.6 billion in 2008. Both governments recognised that this growth could be strengthened further through a formal framework that reduced tariffs, eased investment restrictions, and created predictable rules for businesses. For India, the agreement aligned with its broader engagement with East Asia under the Look East Policy. For South Korea, the CEPA fit into its strategy of expanding trade partnerships beyond traditional markets.
Aim of the CEPA
The primary aim of the India-South Korea CEPA is to liberalise and facilitate trade in goods and services, promote bilateral investment, and strengthen overall economic cooperation. Unlike a narrow free trade agreement limited to tariff cuts, the CEPA was designed as a comprehensive framework covering goods, services, investment, and related regulatory issues.
The agreement seeks to make cross-border trade easier by reducing customs duties, simplifying procedures, and providing clearer market access commitments. It also aims to encourage long-term investment by offering greater certainty and protection to investors from both countries. At a broader level, the CEPA was intended to deepen economic integration, improve competitiveness, and support sustained economic growth in both India and South Korea.
Key Features of the CEPA
The CEPA covers multiple areas of economic interaction and is structured to address both trade and investment barriers.
- Trade in Goods
Under the agreement, India and South Korea committed to reducing or eliminating customs duties on a large proportion of traded goods. Tariff elimination or reduction applies to around 93 percent of India’s export items to Korea and about 85 percent of Korea’s export items to India. Many duties were eliminated immediately, while others were phased out over periods ranging from five to fifteen years.
Both countries retained protection for sensitive sectors. India excluded several agricultural and allied products from tariff cuts, while South Korea protected highly sensitive agricultural commodities such as rice, wheat, and certain dairy products. This approach allowed liberalisation to proceed without disrupting vulnerable domestic sectors.
- Trade in Services
The CEPA provides market access commitments in a wide range of service sectors. Indian service providers in areas such as information technology, engineering, finance, and professional services received improved access to the Korean market. The agreement follows principles of national treatment and non-discrimination, ensuring that foreign service suppliers are treated fairly once they enter the market.
For India, this aspect of the agreement is particularly important, as services form a strong component of its export profile and provide a counterbalance to deficits in merchandise trade.
- Investment
Investment liberalisation is a core element of the CEPA. The agreement allows companies from one country to hold up to 65 percent equity in enterprises in the other country, subject to domestic laws. It also includes provisions on fair and equitable treatment, protection against unlawful expropriation, and access to dispute settlement mechanisms.
These provisions were intended to encourage long-term investment by reducing uncertainty and improving investor confidence. South Korean investments in manufacturing, automobiles, electronics, and infrastructure in India have been closely linked to this framework.
- Rules of Origin and Customs Cooperation
To ensure that only goods genuinely produced in India or South Korea benefit from tariff preferences, the agreement sets out detailed rules of origin. These rules help prevent misuse of the agreement by third-country goods.
The CEPA also promotes customs cooperation and simplified procedures. Both sides committed to transparent, predictable, and technology-driven customs processes to reduce delays and transaction costs for traders.
Impact of the CEPA: Benefits and Gains
Since the CEPA came into force, bilateral trade between India and South Korea has expanded significantly. Total trade crossed USD 20 billion for the first time in 2018 and has remained at similar levels in subsequent years. Indian exports to South Korea more than doubled in the years following implementation, indicating improved market access and diversification of export products.
India’s key exports to South Korea include petroleum products, minerals, organic chemicals, iron and steel articles, and marine products. On the import side, India sources high-value manufactured goods from South Korea, including machinery, electronics, automobiles, and steel. While this has led to a widening trade deficit for India, it has also supported domestic manufacturing by providing access to advanced inputs and technology.
A major benefit for India lies in services trade. India has consistently recorded a surplus in services trade with South Korea, particularly in information technology and professional services. The CEPA has supported this trend by providing a stable framework for Indian service providers to operate in the Korean market.
Investment flows are another important gain. South Korean companies have made substantial investments in India in sectors such as automobiles, electronics, steel, and infrastructure. These investments have contributed to job creation, technology transfer, and integration of Indian firms into global value chains.
Changes and Deliberations Since Implementation
Over time, both countries have reviewed the performance of the CEPA and identified areas requiring improvement. Concerns were raised in India about the growing trade deficit, limited utilisation of tariff preferences by Indian exporters, and challenges related to rules of origin and non-tariff barriers.
In response, India and South Korea initiated discussions to upgrade the CEPA. These talks have focused on correcting imbalances, improving market access for Indian products such as steel, agricultural goods, and marine exports, and addressing regulatory and standards-related barriers. India has also sought greater commitments on services and easier movement of professionals.
Negotiations for upgrading the agreement have continued through multiple rounds up to 2024 and 2025. Both sides have indicated that the objective is not to dilute the agreement but to make it more balanced and responsive to current economic realities. Industry consultations have played an important role in shaping these discussions.
Conclusion
The India-South Korea CEPA is a significant economic agreement that has reshaped trade and investment relations between the two countries. It has expanded market access, encouraged investment, and strengthened cooperation in goods, services, and technology. For India, the agreement has brought increased exports, strong investment inflows, and opportunities in services and manufacturing, even as challenges related to trade balance remain.
Ongoing efforts to upgrade the CEPA reflect a shared recognition that trade agreements must evolve over time. With targeted reforms and deeper cooperation, the CEPA continues to offer a framework through which India can enhance exports, attract investment, and strengthen its economic engagement with one of East Asia’s leading economies.
