Indo- Korean Trade Relationship (text)

Era Business School, New Delhi 1
Assignment : International Economics

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 11 th 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.

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

25 December 2013


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)
(b)
(c)
(d)
(e)

Part 1 – Historical perspective (pre-modern times till 1974).
Part 2 – Building up of trade ties (1974 – 2009).
Part 3 – New surge (2009 till date).
Part 4 – What lies ahead?
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

25 December 2013


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

25 December 2013


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 mid1980s. 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

25 December 2013


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 reassertion 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

25 December 2013


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.

Bilateral Trade 1991- 2009
12.00

$ US in Billions

10.00

10.00

8.00

8.00
6.71

6.00
4.00
2.63
2.00

1.74
0.95

0.00
1991

1994

2002

2005

2006

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

25 December 2013


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,

25 December 2013


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

25 December 2013


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

25 December 2013


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 wellSubmitted by :- 0121pg014 Colonel Ajay K Raina, SM

25 December 2013


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

25 December 2013


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

25 December 2013


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 nontariff barriers and both countries need to remove sector-specific barriers to improve
trade and investment relations.


25 December 2013


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25 December 2013


Annexure 1
(Refers to Para 2.1)


25 December 2013



25 December 2013

Indo- Korean Trade Relationship (text)

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