India’s zinc-trade deficit with Korea tells why we need industry input on deals

News: India aspires to be the 3rd largest economy in the world by the year 2047. The government is working hard to make India self-reliant and play a bigger role in the global economy.

In this context, Indian industry has been requesting the government to look into the existing trade pacts, especially India-South Korea CEPA that includes provisions which are threatening domestic industry.  

What was the trade position before signing of the CEPA between India and South Korea? 

When the India-Korea CEPA was signed, India used to export a sizeable quantity of zinc to the Republic of Korea (RoK). Korea had low production and India had weaker domestic demand.  

The RoK increased its manufacturing capabilities, over time it enhanced its smelting capabilities. It also has lower logistical costs. In addition, it was also helped by the “smart free trade agreement negotiations. Therefore, RoK has been able to supply zinc at highly competitive prices to India.  

India’s import of zinc and zinc alloys products from South Korea increased manifold since 2013-14. It happened because the duty was phased down to zero for the Republic of Korea (South Korea).  

In 2020, the RoK became the leading exporter of zinc. It accounted for around10.5% of global exports, despite having no mines. 

What are the issues in the Indian Zinc Industry and CEPA b/w India and Korea?  

It is facing tough competition from low-cost imports from the RoK.

– India has a lot of domestic manufacturing capabilities. For example, India was the 5th largest country for zinc mining (with 5.67% share) in 2019, after China, Peru, Australia and the US. In India, 100% of the value addition can be done within the country.

Increased negative trade balance with the RoK. It has adversely impacted several downstream industries.  

The India-Korea trade pact has resulted in a large and growing trade deficit in zinc products. It happened because India overlooked imports from South Korea as a threat to domestic market while signing the pact. 

A large deficit between India and South Korea occurred due to the Rules-of-Origin (RoO) in the India-Korea Comprehensive Economic Partnership Agreement (CEPA).  

Way Forward 

There is a need to re-examine the India-Korea CEPA. It needs to talk about the existing product-specific RoO for zinc. India also needs to discuss a change in tariff subheading (CTSH) and other aspects in the trade pact. 

India needs to take lessons from the India-Korea zinc-metal trade case history, and be cautious in its new trade deals with Australia, the UK, Canada and the European Union(EU). 

India needs to have a regular engagement with domestic industry before signing trade agreements with other countries. 

Source: The post is based on an article “India-zinc trade deficit with Korea tells why we need industry input on deals” published in the Live Mint on 5th Apr 22.