Research Reports
Preparatory Research on a Korea-India Comprehensive Economic Partnership Agreement
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AuthorKim, Yunsik
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Publication Date2006.07.01
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Original
India is the economical and political center of the south-west region of Asia. In consideration of India's strategical importance, Korea prepared for a Free Trade Agreement (FTA) with India. In the summit held in October, 2004, two countries announced that they reached the agreement in which two countries made a Joint Study Group to analyze the effect of a Comprehensive Economic Partnership Agreement (CEPA). Based on the agreement, the Joint Study Group met four times from January, 2005 to January, 2006. In the last meeting, the Group adopted the final report prepared for each government. Based on the recommendation of the final report, two countries announced the opening of a CEPA negotiation in February, 2006 and initiated the first negotiation in March, 2006.
In order to measure the effect of an FTA or a CEPA on the domestic products, a partial equilibrium model was developed. Partial equilibrium models used in the previous research assumed that imported goods are homogeneous to goods produced domestically. This assumption led to the overestimation of an FTA effect because domestic price falls to import price that tariff is not levied. Unlike the previous models, this model deals with import goods as a substitute for domestic goods, that is, heterogeneous goods. Then, the domestic industry is affected by the substitution effect between import good and domestic good. The substitution effect is measured as a cross price elasticity in an econometrics model. The larger the cross elasticity, the bigger the domestic influence by an FTA. The difference in quality between foreign goods and domestic goods is reflected into model without additional assumption or variables.
10 years have not passed since Korea began to import from India. Trade pattern is very unstable. In some years, a large quantity was imported and no goods were imported in other years. Thus, an economic analysis is not easy because of the lack of trade data. In this research, most cross elasticities are assumed based on the cross elasticities of other countries. Beef, sesame, onion, chillies, garlic, and grapes are included in the analysis.
Most of the beef exported from India is buffalo. Buffalo does not directly substitute domestic beef. Thus, a cross elasticity of Indian beef is likely to be very small. When cross elasticity of 0.01-0.03 is applied, the production amount of the domestic beef industry decreases by 8 to 24 billion won. For sesame, the production amount falls to 45 to 66 billion won when cross elasticity of 0.2-0.3 is adopted. For onion and chillies, the domestic industry is affected by 3 to 14 billion won and 15 to 46 billion won, respectively.
Several tariffs and levies are charged when a good is imported through an Indian port, such as Basic Duty(BD), Countervailing Duty(CVD), special Countervailing Duty(spl CVD), and Education Cess(EC). Thus, we need to put all tariffs and levies on the table. In addition, it is necessary to clear the definition of the origin and most-favored nation.
A CEPA with India is a good opportunity for the Korean agriculture to export some fruits and food. For example, apples and pears have quality competitiveness in Indian market. It is a good strategy to export goods in the period of Diwali. Diwali is celebrated by all Indian people, irrespectively of region. During this period, the Indian people buys high quality goods, including imported food. Companies that try to show their products to the Inidan consumers may use AAHAR, the international food fair held in Delhi every year.
Researchers: Yun-shik Kim
E-mail Address: yunshik@krei.re.kr
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