The FTA cautionary tale: What India-Korea trade warns us about new global deals

A recent analytical commentary has examined India's experience with the Comprehensive Economic Partnership Agreement (CEPA) with South Korea — signed in 2009...

What Happened

A recent analytical commentary has examined India's experience with the Comprehensive Economic Partnership Agreement (CEPA) with South Korea — signed in 2009, in force from January 2010 — as a warning for how India should approach new trade deals, including the recently signed New Zealand FTA and ongoing negotiations with the United States.
India's trade deficit with South Korea has roughly tripled since the CEPA came into force: from approximately USD 5 billion in 2009-10 to USD 15.2 billion in 2024-25, making Korea one of India's largest bilateral deficit sources.
India's exports to South Korea have actually declined — from above USD 8 billion in FY22 to USD 5.82 billion in FY25 — while South Korean exports to India have climbed to USD 21 billion, a clear asymmetry in FTA utilisation.
Key structural failures identified include poorly designed Rules of Origin (RoO) that favoured Korean producers, low FTA utilisation by Indian MSMEs due to awareness gaps, third-country product routing concerns (especially Chinese goods routed through ASEAN), and India's weakness in services-sector commitments.
Renegotiation of the CEPA as "CEPA 2.0" is underway, with a target to conclude by mid-2027, prioritising services trade, professional mobility for Indian IT workers, and tighter rules of origin.

Static Topic Bridges

Comprehensive Economic Partnership Agreements (CEPAs) and FTAs

A CEPA is a broader form of Free Trade Agreement that encompasses not only goods trade (tariffs, quotas) but also services, investment, intellectual property, competition policy, and technical cooperation. India has preferred the CEPA format for major bilateral deals. The India–South Korea CEPA, concluded after 12 rounds of negotiations over three years, was one of India's most ambitious early deals.

India's post-2010 FTA landscape: CEPAs/FTAs signed with ASEAN (2010), South Korea (2010), Japan (2011), Malaysia (2011), UAE (2022), Australia (ECTA, 2022).
A retrospective study of India's three key FTAs with ASEAN, Korea, and Japan found that India's merchandise trade deficit with these partners grew disproportionately faster than India's global trade deficit.
The India–Korea CEPA was signed under Article XXIV of GATT and Article V of GATS, which permit preferential arrangements provided they cover substantially all trade.
India's CEPA with UAE (2022) and ECTA with Australia (2022) reflect a more calibrated, phased approach compared to the comprehensive upfront liberalisation in the Korea deal.

Connection to this news: The Korea experience is the analytical lens through which India's FTA practitioners now evaluate new agreements — examining whether the RoO regime, services commitments, and safeguard mechanisms adequately protect Indian producers while delivering genuine market access.

Rules of Origin (RoO) — The Hidden Architecture of FTAs

Rules of Origin determine the "economic nationality" of a product — they specify how much local content or transformation is required for a product to qualify for preferential tariff treatment under an FTA. Poorly designed RoO can allow third-country goods (e.g., Chinese intermediate goods processed minimally in a partner country) to enter India at preferential rates, undercutting domestic producers.

RoO criteria include: Change in Tariff Classification (CTC), Value-Added Test (minimum percentage of local value addition), and Specific Process Rules (mandating particular manufacturing steps).
In the India–Korea CEPA, complex RoO clauses were exploited by Korean companies in sectors such as electronics and steel by minimally processing Chinese intermediate goods, then exporting to India at concessional rates.
The India–ASEAN FTA faced similar issues, particularly in textiles and palm oil, where minimal processing in ASEAN countries of goods originating in China enabled tariff arbitrage.
Post-2020, India has become more assertive about embedding stricter RoO, tariff safeguards, and anti-circumvention provisions in new FTAs — reflected in the UAE and Australia agreements.

Connection to this news: If the New Zealand or prospective US bilateral FTA does not embed robust RoO for sectors like electronics, chemicals, or steel, India risks repeating the Korea pattern — generating a trade deficit rather than a surplus in sectors where it sought market access.

Trade Deficit — Measurement, Causes, and Policy Implications

India's trade deficit is the excess of merchandise imports over merchandise exports. A persistent and widening deficit can put pressure on the current account, depreciate the exchange rate, reduce foreign exchange reserves, and signal structural weaknesses in export competitiveness.

India's overall merchandise trade deficit in 2024-25 was approximately USD 250 billion; the current account deficit (which includes services) was more manageable at under 1.5% of GDP, cushioned by strong services exports and remittances.
FTA-induced deficits are considered more concerning than general deficits because they reflect policy-enabled import surges, not just competitiveness gaps — and they may also displace domestic industry.
The analysis of India's three key FTAs (ASEAN, Korea, Japan) found that import growth from these partners consistently outpaced export growth — a structural outcome linked to India's lower export readiness and the partners' stronger industrial base.
Remedial tools include: renegotiation (CEPA 2.0 with Korea), safeguard mechanisms (temporary duty increases if imports surge beyond a threshold), and NTB equivalent measures (SPS/TBT standards that domestic producers already meet).

Connection to this news: As India enters more FTAs — including the New Zealand deal and a potential US bilateral deal — the Korea CEPA deficit experience makes the case for thorough ex-ante economic impact assessments and building in safeguard clauses and RoO provisions from the outset.

CEPA 2.0 Renegotiation — India's Corrective Approach

India has formally initiated renegotiation of the Korea CEPA, with a 12th round of upgrade negotiations targeting conclusion by the first half of 2027. This is part of India's broader FTA recalibration strategy that also seeks to renegotiate the ASEAN goods FTA.

India's priority demands in CEPA 2.0: stronger services commitments (binding commitments in IT, healthcare, and engineering), visa quotas for Indian professionals in Korean AI and semiconductor industries, tighter RoO (especially in electronics and steel), and mutual recognition of qualifications.
Indian IT exports to Korea stand at only approximately USD 200 million despite India's global IT services exports exceeding USD 200 billion — indicating a vast untapped services market.
Korea has maintained a KC-mark certification regime that duplicates international testing standards, creating a technical barrier to Indian product exports not addressed in the original CEPA.
The renegotiation reflects a shift from a "deal completion at any cost" mindset to a more mercantilist and sector-strategic approach to FTAs.

Connection to this news: CEPA 2.0 negotiations demonstrate that FTAs are not static instruments — they can be renegotiated, but at the cost of diplomatic capital and time. Building the right architecture from the start (as the New Zealand deal attempts to do) is preferable to retrospective correction.

Key Facts & Data

India–Korea CEPA signed: 2009; in force from January 2010
India's trade deficit with South Korea in 2009-10: approximately USD 5 billion
India's trade deficit with South Korea in 2024-25: USD 15.2 billion (roughly tripled)
India's exports to Korea in FY25: USD 5.82 billion (down from over USD 8 billion in FY22)
South Korean exports to India in FY25: USD 21 billion
CEPA 2.0 target conclusion: first half of 2027
India's global goods exports (2024-25): approximately USD 437 billion
India's IT services exports to Korea: approximately USD 200 million (versus USD 200 billion globally)
India's other FTA partners: ASEAN (2010), Japan (2011), UAE (2022), Australia/ECTA (2022)
Governing WTO frameworks: GATT Article XXIV (goods), GATS Article V (services)
India's current account deficit (2024-25): under 1.5% of GDP