• UGI USER
  • Mar 12, 2024
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THE INDIA-EFTA TRADE DEAL

Syllabus:

GS 2:

  • Role of women and women’s organization, population and associated issues, poverty and developmental issues, urbanization, their problems and their remedies.

Focus:

  • Landmark FTA pact was signed at Bharat Mandapam in New Delhi on March 10, 2024
Source:- TOI

The trade agreement between India and the European Free Trade Association (EFTA)—comprising Iceland, Liechtenstein, Norway, and Switzerland—marks a significant achievement for both parties, presenting numerous mutual benefits. This landmark pact, signed at Bharat Mandapam in New Delhi on March 10, 2024, stands as India’s inaugural trade agreement with any

Western entity, showcasing a balanced approach to enhancing bilateral trade in goods and services as well as investment flows.

India’s First Western Trade Deal:

  • India signed the India-EFTA Trade and Economic Partnership Agreement with the European Free Trade Association (EFTA), consisting of Iceland, Liechtenstein, Norway, and Switzerland.
  • Covers two-way trade in goods and services and bilateral investments.
  • Expected to open doors for negotiations with other Western nations like the EU, UK, and US.

Momentum and Complexity:

  • Negotiations began in January 2008 but gained momentum only recently.
  • Amid stalled talks at the WTO, countries are seeking bilateral FTAs.
  • Modi government’s efforts with EU, UK, US, and others highlight the importance of Sunday’s deal.

Trade Deficit and Partnerships:

  • India consistently holds a trade deficit with EFTA countries.
  • Switzerland is the largest trade partner, with gold being a significant import.
  • Major Indian exports include chemicals, semi-precious stones, pharmaceuticals, and electronic instruments.

Highlights of the India-EFTA Trade Agreement:

  1. Investment Promotion:
    • EFTA commits to boosting foreign direct investments (FDI) in India by USD 100 billion over the next 15 years, aiming to generate 1 million direct jobs.
    • Legal commitment made for the first time in FTA history to promote target-oriented investment and job creation.
  2. Market Access:
    • EFTA offers access to 92.2% of its tariff lines, covering 99.6% of India’s exports.
    • EFTA’s market access includes 100% coverage of non-agricultural products and tariff concessions on Processed Agricultural Products (PAP).
  3. Tariff Lines and Exclusions:
    • India offers access to 82.7% of its tariff lines, covering 95.3% of EFTA exports, with certain exclusions for sensitive sectors like pharma, medical devices, and processed food.
    • Sectors such as dairy, soya, coal, and sensitive agricultural products are excluded from tariff concessions.
  4. Sub-Sector Commitments:
    • India offers 105 sub-sectors to EFTA and secures commitments in various sub-sectors from each EFTA member.
  5. Stimulation of Services Exports:
    • TEPA encourages services exports in sectors like IT services, business services, education, and audio-visual services.
    • EFTA offers improved access through digital delivery, commercial presence, and entry of key personnel.
  6. Professional Services Recognition:
    • TEPA includes provisions for Mutual Recognition Agreements in professional services such as nursing, chartered accountancy, and architecture.
  7. Intellectual Property Rights (IPR) Commitments:
    • IPR commitments align with TRIPS standards, addressing India’s concerns regarding generic medicines and patent evergreening.
    • High standards for IPR demonstrated through the chapter with Switzerland.
  8. Commitment to Sustainable Development:
    • Emphasis on sustainable development, inclusive growth, and environmental protection.
    • Fosters transparency, efficiency, and harmonization of trade procedures.
  9. Boost for Exporters:
    • Enhances access to specialized inputs, creating a conducive trade and investment environment.
    • Opportunities for Indian goods and services in global markets, including integration into EU markets through Switzerland.
  10. Promotion of “Make in India” and Self-Reliance:
    • Encourages domestic manufacturing in sectors like infrastructure, pharmaceuticals, and food processing.
    • Facilitates technology collaboration and access to leading technologies, promoting innovation and R&D.
  11. Job Creation and Skill Development:
    • Expects to create a significant number of direct jobs in India over the next 15 years.
    • Facilitates vocational and technical training, promoting skill development among the youth.
Types of Economic Engagements:

  • Preferential Trade Agreement (PTA):
    • Involves two or more partners agreeing to reduce tariffs on specific tariff lines.
    • The list of products subject to reduced duty is known as a positive list.
    • Example: India MERCOSUR PTA.
  • Free Trade Agreement (FTA):
    • Eliminates tariffs on items of substantial bilateral trade between partner countries.
    • Each partner maintains its own tariff structure for non-members.
    • Example: India – Sri Lanka FTA.
  • Common Market:
    • Represents deeper integration than a Customs Union.
    • Allows free movement of labor and capital, and harmonizes technical standards.
    • Example: The European Common Market.
  • Economic Union:
    • Extends a Common Market through further harmonization of fiscal/monetary policies and shared institutions.
    • Example: European Union (EU).
  • Comprehensive Economic Cooperation Agreement (CECA) and Comprehensive Economic Partnership Agreement (CEPA):
    • Agreements covering goods, services, investment, IPR, competition, etc.
    • Example: India Korea CEPA, covering trade facilitation, customs cooperation, investment, competition, IPR, etc.
  • Customs Union:
    • Partner countries trade at zero duty among themselves.
    • Maintain common tariffs against the rest of the world.
    • Example: Southern African Customs Union (SACU) including South Africa, Lesotho, Namibia, Botswana, and Swaziland. The European Union also operates as a Customs Union.

Significance of FTAs:

  • Enhanced Access to Goods and Services: FTAs provide businesses and consumers with access to a wider range of competitively priced goods and services, fostering innovation and technological advancement.
  • Boost in Foreign Investment Benefits: FTAs facilitate increased benefits from foreign investment, stimulating economic growth and development.
  • Regional Economic Integration: FTAs promote regional economic integration, fostering shared approaches to trade and investment among partner countries.
  • Economic Growth for Less-developed Economies: FTAs offer trade and investment opportunities that contribute to the economic growth of less-developed economies.
  • Strengthening Bilateral Relationships: FTAs support stronger people-to-people and business-to-business links, enhancing overall bilateral relationships with partner countries.
  • Ongoing Benefits and Reform: FTAs can continue to provide benefits over time through in-built agendas encouraging ongoing domestic reform and trade liberalization.

Major Challenges in Adopting FTAs:

  • Protectionist Tendencies: Rising import duties on certain items may hinder the adoption of FTAs and expose governments to accusations of protectionism.
  • Non-tariff Hurdles: Non-tariff issues, such as demographic challenges and shifting priorities, can pose obstacles to reaping the benefits of FTAs.
  • Political and Lobbying Pressure: Influential lobby groups, such as farmer unions and industry sectors, may delay or complicate FTA negotiations through political lobbying efforts.
  • Emphasis on Non-tariff Issues: Negotiations often prioritize non-tariff issues like climate action and labor standards over trade issues, complicating FTA agreements.
  • GSP and Trade Barriers: The Generalized System of Preferences (GSP) may face challenges if non-tariff barriers related to labor or environmental standards are imposed.
  • Recessionary Conditions: Economic downturns can lead partner countries to resort to non-tariff protectionist measures, hindering FTA implementation.
  • Environmental Concerns: Issues such as carbon emissions and carbon border adjustment mechanisms may complicate FTA negotiations, particularly for countries with differing production methods.

Way Forward:

  • Open and Competitive Economy: Emphasize economic reforms to create an open, competitive, and technologically advanced economy, facilitating global economic integration.
  • Strengthen MSME Sector: Support the Micro, Small, and Medium Enterprises (MSMEs) sector through incentives and linkages with Special Economic Zones to boost exports.
  • Enhance Domestic Manufacturing: Focus on strengthening domestic manufacturing in value-added products to increase export competitiveness.
  • Infrastructure Development: Invest in infrastructure development to support exporters and streamline export processes through digitization and modern trade practices.
  • Scrutinize FTAs: Establish mechanisms, like the Committee on Commerce, to scrutinize FTAs, ensuring transparency and accountability in negotiations and agreements.

Source:

https://www.livemint.com/news/india/winwin-situation-pm-modi-on-why-india-efta-deal-is-one-of-the-most-pioneering-free-trade-agreements-between-nations-11710056433638.html

Mains Practice Question:

highlights and implications of the India-EFTA Trade Agreement signed recently. How does this agreement contribute to India’s economic growth, international trade relations, and strategic positioning in the global arena? Analyze the potential challenges and opportunities presented by the agreement, along with its significance in the context of India’s broader trade and diplomatic objectives.