“The ministry wants to know if there are any trade barriers or certain testing standards that hinder the growth of exports from India,” he added. The CEPA bilateral trade pact, which came into effect in 2010, boosted trade and investment between the two countries, but Korea had a clear lead. In 2019, exports from India amounted to $5.6 billion, while exports from South Korea amounted to $15.1 billion. Korea`s exports to India amounted to $5.36 billion from January to June 2020, down 33 percent from the same period last year, when the coronavirus pandemic weighed heavily on bilateral trade. However, Korea`s imports from India fell by less than 5.3 percent to $2.59 billion, reducing the trade surplus to $2.76 billion, which fell by almost half from the previous year. Clothing items and clothing accessories, unnitted or crocheted (product HS-Code 62), are in the top 12 of Indian exports to Japan. While tariffs on this product have been reduced in CEPA, the absolute trade value has decreased (see Figure 4). In addition, the average annual growth rate was minus 2%. This may be due to competition from other countries, as similar advantages also occur for Japan`s other trading partners, such as Bangladesh and Vietnam; these countries surpass India in terms of textile exports. Therefore, to remain competitive in textiles, India needs to innovate in terms of product lines and cost-cutting measures.
Joining RCEP would have made India part of the regulatory framework of the so-called largest trade deal in the world. RCEP was also expected to incentivize India to implement much-needed domestic reforms to make manufacturing more competitive. First, India has already concluded bilateral free trade agreements with ASEAN, Korea and Japan, and negotiations are under way with Australia and New Zealand; India was therefore familiar with these economies. However, China`s inclusion in the RCEP, with which India has a trade deficit of $54.7 billion in 2018, half of the country`s total trade deficit, has been a source of concern for Indian negotiators. This trade gap has widened considerably since China`s accession to the World Trade Organization (WTO) in 2001. So it was worrisome: how a new wave of liberalization under RCEP, which would further reduce customs lines for more products, would worsen this large trade deficit. As the trade balance remains favourable to South Korea, the Ministry of Commerce convened a meeting of Export Promotion Councils (ECCs) and industrial captains on September 11 to find problems that hinder India`s exports to the East Asian nation. Source: In 2018, India withdrew from the Regional Economic Partnership (RCEP) project using UN Comtrade data, after negotiating in 2013.
India has a trade deficit with 11 of the 15 RCEP countries and some analysts have theorized that India decided to exit the deal because of this negative trade balance. Indeed, India, along with most of its trading partners, has a trade deficit in previous free trade agreements (FTA). In this context, this letter looks at India`s trade deficit with two of RCEP`s major trading partners with whom India has an existing trade agreement, namely: Japan and South Korea – and highlights what India needs to do to reverse the trade balance in its favor. . . .