India EFTA Trade and Economic Partnership Agreement (GS Paper 3, Economy)
Why in news?
- India-European Free Trade Association signed a Trade and Economic Partnership Agreement on 10th March 2024.
- India has been working on a Trade and Economic Partnership Agreement (TEPA) with EFTA countries comprising Switzerland, Iceland, Norway & Liechtenstein. The Union Cabinet has approved signing of the TEPA with EFTA States.
- EFTA is an inter-governmental organization set up in 1960 for the promotion of free trade and economic integration for the benefit of its four Member States.
Details:
- The agreement comprises of 14 chapters with main focus on market access related to goods, rules of origin, trade facilitation, trade remedies, sanitary and phytosanitary measures, technical barriers to trade, investment promotion, market access on services, intellectual property rights, trade and sustainable development and other legal and horizontal provisions.
- EFTA is an important regional group, with several growing opportunities for enhancing international trade in goods and services.
- EFTA is one important economic block out of the three (other two - EU &UK) in Europe. Among EFTA countries, Switzerland is the largest trading partner of India followed by Norway.
The highlights of the agreement are:
- EFTA has committed to promote investments with the aim to increase the stock of foreign direct investments by USD 100 billion in India in the next 15 years, and to facilitate the generation of 1 million direct employment in India, through such investments. The investments do not cover foreign portfolio investment.
- For the first ever time in the history of FTAs, a legal commitment is being made about promoting target-oriented investment and creation of jobs.
- EFTA is offering 92.2% of its tariff lines which covers 99.6% of India’s exports. The EFTA’s market access offer covers 100% of non-agri products and tariff concession on Processed Agricultural Products (PAP).
- India is offering 82.7% of its tariff lines which covers 95.3% of EFTA exports of which more than 80% import is Gold. The effective duty on Gold remains untouched. Sensitivity related to PLI in sectors such as pharma, medical devices & processed food etc. have been taken while extending offers. Sectors such as dairy, soya, coal and sensitive agricultural products are kept in exclusion list.
- India has offered 105 sub-sectors to the EFTA and secured commitments in 128 sub-sectors from Switzerland, 114 from Norway, 107 from Liechtenstein, and 110 from Iceland.
- TEPA would stimulate our services exports in sectors of our key strength / interest such as IT services, business services, personal, cultural, sporting and recreational services, other education services, audio-visual services etc.
- Services offers from EFTA include better access through digital delivery of Services (Mode 1), commercial presence (Mode 3) and improved commitments and certainty for entry and temporary stay of key personnel (Mode 4).
- TEPA has provisions for Mutual Recognition Agreements in Professional Services like nursing, chartered accountants, architects etc.
- Commitments related to Intellectual Property Rights in TEPA are at TRIPS level. The IPR chapter with Switzerland, which has high standard for IPR,shows our robust IPR regime.India’s interests in generic medicines and concerns related to evergreening of patents have been fully addressed.
- India signals its commitment to Sustainable development, inclusive growth, social development and environmental protection
- Fosters transparency, efficiency, simplification, harmonization and consistency of trade procedures
- TEPA will empower our exporters access to specialized inputs and create conducive trade and investment environment. This would boost exports of Indian made goods as well as provide opportunities for services sector to access more markets.
- TEPA provides an opportunity to integrate into EU markets. Over 40% of Switzerland’s global services exports are to the EU. Indian companies can look to Switzerland as a base for extending its market reach to EU.
- TEPA will give impetus to “Make in India” and Atmanirbhar Bharat by encouraging domestic manufacturing in sectors such as Infrastructure and Connectivity, Manufacturing, Machinery, Pharmaceuticals, Chemicals, Food Processing, Transport and Logistics, Banking and Financial Services and Insurance.
- TEPA would accelerate creation of large number of direct jobs for India’s young aspirational workforce in next 15 years in India, including better facilities for vocational and technical training. TEPA also facilitates technology collaboration and access to world leading technologies in precision engineering, health sciences, renewable energy, Innovation and R&D.
Why is the timing of the signing crucial for India?
- Over 64 countries, including India, are headed into elections in 2024, which could mean a long pause in free trade agreements (FTAs) for India and its trade partners. However, time is running out as the global supply chain is fast undergoing a reset with investment, for the first time in the recent past, moving away from China.
- While India is seen as a top contender by global inventors, the Vietnam-led Association of Southeast Asian Nations (ASEAN nations) and North American nations like Mexico are also emerging as favourable investment destinations. A delay in streamlining investment flows and renewed attempts at global integration may turn out to be a missed geo-political opportunity.
- While the India-EFTA trade deal has been inked, major deals such as India’s FTA with the UK and EU still run the risk of political uncertainty.
Why did India push for investment commitment in the EFTA deal?
- India runs a trade deficit with most of its top trade partners, except for the US. This is also true in the case of FTAs that India has signed in the past, especially with ASEAN nations.
- While the ASEAN FTA did help India secure intermediate products, India’s increasing average tariffs (18 per cent) have meant that India’s FTA partners have better access to the Indian market after tariff elimination. Average tariffs in developed nations hover around 5 per cent.
- The India-EFTA deal is also expected to widen the trade gap. Even as the legality of the $100 billion investment commitment by EFTA remains unclear, such investment could help India generate economic activity and jobs in exchange for giving market access to EFTA.
- Moreover, India could see gains in the services sector and the deal could help India power its services sector further.
Which Indian sectors could EFTA investment benefit?
- The funds from the EFTA region include Norway’s $1.6 trillion sovereign wealth fund, the world’s largest such ‘pension’ fund, which posted a record profit of $213 billion in 2023 on the back of strong returns on its investments in technology stocks.
- India could see investment flow into the pharma, chemical sectors, food processing and engineering sectors. Government officials said that EFTA is also looking at joint ventures (JVs) in the above-mentioned sectors that will help India diversify imports away from China.
- Currently, India’s imports of chemical products from China in FY23 alone stood at a massive $20.08 billion. It imported $3.4 billion worth of medical and bulk drugs worth nearly $7 billion from China, as per commerce and industry ministry data.
Why will it be difficult for India to access the EFTA market?
- Switzerland, which is India’s biggest trade partner among EFTA countries, decided to eliminate import duties on all industrial goods for all countries starting from January 1, 2024.
- The abolition of tariffs on all industrial products, including chemicals, consumer goods, vehicles and clothing is a concern for India as industrial goods accounts for 98 per cent of India’s $1.3 billion merchandise exports to Switzerland in FY2023. India’s goods will face stiffer competition despite any tariff elimination that would be part of the deal.
Background:
- India and EFTA have been negotiating the pact, officially dubbed the Trade and Economic Partnership Agreement (TEPA), since January 2008. Thirteen rounds of talks were held till November 2013 before negotiations were put on hold.
- Both sides resumed the negotiations in October 2023 and concluded it in a fast-track mode.
- EFTA countries are not part of the European Union (EU). It is an inter-governmental organisation for the promotion and intensification of free trade. It was founded as an alternative for states that did not wish to join the European community.
