Following Through on the CEPA

There were some naysayers wondering if the recent Comprehensive Economic Partnership Agreement (CEPA ) between India and South Korea, which was ratified last year and went into effect on Jan. 1, was actually worth the paper it was printed on. The agreement, while definitely comprehensive and totally about economic matters, seemed to lack the quick and decisive stance of a full-on Free Trade Agreement. The percentage that tariffs were lowered by was smaller, the time taken to lower them longer, and the whole affair seemed to be anti-climatic after the several years of analysis and negotiations that created it. Why not have a simple FTA with India? Why not have true free trade between the two countries? It seemed like a cop-out, and almost a failure. But recent events have seemed to change all that.

Since the agreement was put into effect on Jan. 1 of this year, Lee Myung-bak has wasted no time in acting on it to create even stronger ties between the two countries. The president visited India from Jan. 24 to 27 at the invitation of Indian President Pratibha Devisingh Patil. On Jan. 24, he visited a Hyundai Motor Factory in Sriperumbudur, near Chennai, and spoke with employees there. On Jan. 25, Lee met with Indian Prime Minister Manmohan Singh in New Delhi. And on Jan. 26, the president was the chief guest of the country’s Republic Day celebrations. The last time he visited India was in 2007, which shows that this South Korean president recognizes India’s growing importance on the world stage. Also, other recent chief guests at India’s Republic Day celebrations have been then-Russian President Vladimir Putin in 2007, French President Nicolas Sarkozy in 2008, and President Nursultan Nazarbayev of Kazakhstan in 2009.

The two leaders spoke about a number of different issues for boosting bilateral relations and strategic partnerships. Trade was among those issues, with both leaders agreeing to expand bilateral trade from the US $12.2 billion it was in 2009 to $30 billion by 2014. After the meeting, Lee and Singh signed a joint statement that contained 31 different agreements about diplomacy, security, economy, trade, science and technology, society and culture. One of the most important was creating a diplomatic and defense communications channel and establishing a joint committee to review military supply projects.

The two sides also signed four different accords after the talks were finished. They were related to cooperation in space usage, information technology and science and technology for the next two years. Also, the two countries set up an extradition treaty for criminals. One of the more detailed consequences of the signing was an agreement to set up a $10 million fund to promote bilateral research ventures. And Singh said that India was doing everything it could to fast-track a $ 12 billion POSCO steel project in Orissa, despite some civil protests.

Far-reaching Implications

South Korea and India’s ever-expanding relationship is like a match made in heaven. They just go well together, and this fact has been easily realized by the quickly growing trade between them. In 1990, the trade between the two countries was only $500 million, and it has grown to be 25 times that, $12.2 billion, in just 18 years. And this growing trade has been because the two countries just have good things to give each other. South Korea has the capital and technology that India needs, while India has the cheap labor and growing middle class market that South Korea needs. Also, South Korea’s emphasis on IT hardware and India’s expertise in software go well together. South Korea’s POSCO has invested in Indian steel works, while India’s TATA Company has invested in Korea’s Daewoo. Korea is now the seventh largest investor in India. The way that the two countries can work together has been serendipitous.

Because of this, the two countries have been working closely to create a common approach to political and strategic issues in regional politics. There are several factors that have caused the countries to work together more closely in recent years. The first and most remarkable thing about them is a growing strategic understanding between India and the United States. South Korea has a long history of working closely with U.S. strategic interests since the Korean War, and while such cooperation is new for India, that country is also working more closely with U.S. interests. Also, the rise of China has given both countries reason to work together in order to meet this new challenge from their behemoth neighbor. A steady, stable Asia will benefit both countries’ trade ties, which are increasingly more important for India and have always been important for South Korea. It is in the best interests of both countries to make sure the Asian theater does not devolve into war.

Both countries also have belligerent, nuclear-armed neighbors in North Korea and Pakistan, which brings for even more mutual cooperation. There are many rumors that North Korea and Pakistan have provided military expertise to each other. North Korea has provided missilerelated technology to Pakistan, and in return Pakistan supplied nuclearrelated technology to North Korea. Preventing such cooperation in the future is in the best interests of both India and South Korea.

The peaceful applications of nuclear technology are also important to both India and South Korea, which was evidenced by the announcement on Sunday, Jan. 24, saying that both countries will work together on nuclear issues. President Lee said that he promoted Korea’s nuclear power technology in negotiations, and expects a nuclear power plant construction deal to come out of the talks soon. This is not unprecedented, since a South Korean consortium recently won a $20.4 billion contract to build four 1,400-MW civilian nuclear power units in the UAE.

India Reaching Out as a Trend

President Lee got the royal treatment in India in January, but he hasn’t been the only one. As mentioned before, there have been a string of foreign leaders invited to the Republic Day events: Nazarbayev, Sarkozy and Putin are just the three most recent. Each guest has been invited for very sound and sensible reasons. President Nazarbayev of Kazakhstan was invited because his country is one of the largest producers of uranium, which India desperately needs for its new nuclear reactors. India signed a civil nuclear deal with Kazakhstan during the visit and has since received the first uranium delivery. Good times all around. President Sarkozy was invited because the two countries finalized their bilateral civil nuclear cooperation agreement while India was awaiting the conclusion of its Safeguards Agreement with the IAEA . President Putin of Russia formally acknowledged India as a nuclear power during his visit in 2007, and offered to build four more nuclear reactors at Kudankulam in Tamil Nadu, and more in other places. Russia also promised support for a special wavier from the Nuclear Suppliers’ Group during the visit.

So India is doing everything it can to secure nuclear power for its growing infrastructure. It discussed this at length with South Korea as well, and both parties expect to sign a deal to build some nuclear power plants in the near future. India is very interested in becoming a nuclear powerfueled nation, since it still has to provide enough energy to its people to create steady infrastructure. Since the meeting with South Korea, India signed a deal with Britain allowing it to compete with Russia and France in providing $150 billion in nuclear power equipment. This is part of a larger plan, because India is trying to increase the power it generates from nuclear sources 100-fold in the next 40 years. U.S. government officials estimate that deals worth at least $150 billion will be generated during that time. It looks like Korea is also in the bidding for these kinds of future deals now. The Indo-U.S. nuclear deal and waiver granted to India from the Nuclear Suppliers Group (NSG ) has opened the country to global nuclear commerce. With access to global technological advances and uranium fuel supplies, the country renewed an ambitious nuclear energy program, creating a huge demand for equipment and services.

Going with the Flow to a New Asia

Korea and India’s cooperation is not something that is forced, political or detrimental to either party. It is simply recognition of what is going to be best for both parties. In the complicated world of international politics, it is refreshing to see two countries setting up agreements and increasing bilateral ties just because it is good for both economies. For someone who is used to following the policies of established countries who have already set up their trade agreements and now play power politics with them, this is a marked change. Neither India nor South Korea is interested in controlling each other, causing each other to adopt military or philosophical stances, or forcing each other into regional military conflicts. They just recognize that they are mutually beneficial, and have established more trade ties.

While the specter of a changing power structure in Asia is always hanging over these talks, it is not the primary focus of the agreement, or even a peripheral focus. The focus is simply money through trade. Korean companies are going to be raking in the dough selling to a market they can never satisfy in India. Indian labor is going to be working itself into a well-paid froth creating all the hardware that Korean designers want. Money from one country is going to be invested in the other, and vice versa. And both countries will be climbing the cooperative ladder to riches.

In previous articles, I’ve mentioned before that India and China can be seen as two giant whirlpools in the world’s economy, drawing more and more goods and services their way and obstructing the free flow of those same goods and services into other areas. In the nuclear power sector, India is drawing bids from France, Russia, England and now South Korea as well. What other countries will be denied a new nuclear power plant because all of the existing nuclear power construction companies are busy in India? What kinds of half-rate nuclear power plant contractors that have never actually finished a plant before will get a job and cause accidents? The far-reaching implications of India sucking up all the nuclear power production in the world cannot be predicted. However, after India’s 1 billion people are all safely getting their power from fission, the world will most likely be a better place.

India also has the potential to use all of Korea’s resources. Korea could grow its trade with India until the United States is no longer a significant part of Korea’s exports. This could shift Korea from a country obsessed with learning English to a country obsessed with learning other languages. Cultural exchange could also result, enriching both cultures. Because both India and Korea have a strong history of Buddhism together, they could find cultural similarities to be much stronger than in any potential relationship between Korea and the United States or with India and the United States. The end result of this new economic cooperation could be the diminishing of U.S. influence in Asia.

Despite what might happen in the far future, for now both countries couldn’t be happier with the agreement. India gets what it wants and Korea gets what it wants as well. Power shifts, money changes hands, and the future swirls into another set of potential fantastic shapes. But for now, everything works out for both parties. This can be the day when Asia starts taking care of itself as a region and cooperation between south and east becomes something historic. Let’s see what happens next.