India-EFTA Pact: Unlocking a New Era of Trade Partnerships

This article draws from “A fresh stance: On India and the European Free Trade Association deal” published in The Hindu on March 14, 2024. It discusses the importance and hurdles of the newly signed Trade and Economic Partnership Agreement (TEPA) between India and the European Free Trade Association (EFTA), highlighting how this agreement could influence India’s economic landscape.

India recently reached a significant milestone by finalizing the Trade and Economic Partnership Agreement (TEPA) with the European Free Trade Association (EFTA), which consists of four non-EU nations— Iceland, Liechtenstein, Norway, and Switzerland. This landmark deal, achieved after 15 years of detailed discussions, holds immense potential to bolster economic growth, create job opportunities, and enhance the bilateral ties between the involved parties.

The agreement promises a bright future but also brings with it challenges that need careful consideration. Tackling these effectively will be crucial for forging a path towards a more integrated and flourishing global economy. This partnership is a crucial step in that direction, signaling new beginnings and mutual benefits.

European Free Trade Association (EFTA): Overview

About EFTA:

• The European Free Trade Association (EFTA) is an intergovernmental organization focused on promoting free trade and economic integration for its members— Iceland, Liechtenstein, Norway, and Switzerland—and their global trading partners.

Historical Background:

• EFTA was founded on January 4, 1960, through a convention signed in Stockholm.
• The organization was created as an alternative for European countries that could not or did not want to join the European Economic Community (EEC), which is now part of the European Union (EU).

Main Responsibilities:

• EFTA Convention: EFTA manages and develops the EFTA Convention, which sets the economic relations among the EFTA states.
• EEA Agreement: The organization also oversees the European Economic Area (EEA) Agreement, linking EU member states with Iceland, Liechtenstein, and Norway in a single market known as the “Internal Market.”
• Global Trade Agreements: EFTA works on expanding its network of free trade agreements globally.

EFTA and India:

• Trade Statistics (2022-23): India exported goods worth USD 1.92 billion to EFTA countries and imported goods totaling USD 16.74 billion.
• Bilateral Trade: The total trade between India and EFTA was valued at USD 18.65 billion for the year 2022-23.
• Major Trading Partners: Switzerland is India’s largest trading partner within EFTA, followed by Norway, primarily due to significant gold imports from Switzerland.
• Trade Agreement: In March 2024, India and EFTA signed the Trade and Economic Partnership Agreement (TEPA) to enhance economic cooperation.

Overview of the Trade and Economic Partnership Agreement (TEPA)

The Trade and Economic Partnership Agreement (TEPA) is designed to strengthen trade and economic ties between India and the European Free Trade Association (EFTA) countries, which include Switzerland, Norway, Liechtenstein, and Iceland. Here’s a breakdown of the key objectives and highlights of the agreement:

Objectives of TEPA:

• Trade and Investment Opportunities: TEPA seeks to boost trade and investment by reducing or eliminating tariffs and non-tariff barriers on a broad spectrum of products.
• Market Access: The agreement ensures fair and transparent conditions for service providers and investors, fostering a conducive environment for economic activities.
• Intellectual Property Rights: Enhances cooperation on the protection and enforcement of intellectual property rights.
• Trade Facilitation: Simplifies trade procedures and strengthens customs cooperation. TEPA also includes effective mechanisms for dispute resolution.

Coverage of the Agreement:

TEPA is comprehensive, comprising 14 chapters that cover a wide range of economic interactions:

• Trade in goods
• Rules of origin
• Intellectual property rights (IPRs)
• Trade in services
• Investment promotion and cooperation
• Government procurement
• Technical barriers to trade
• Trade facilitation

Key Highlights:

• Investment Promotion: EFTA commits to promoting investments aimed at increasing foreign direct investment in India by USD 100 billion over the next 15 years, with the goal of creating 1 million direct jobs in India through these investments.
• Innovative Commitments: For the first time in the history of free trade agreements, there is a legal commitment to targeted investment and job creation.
• Tariff Concessions: EFTA will open up 92.2% of its tariff lines, covering 99.6% of India’s exports to EFTA countries. Conversely, India is offering access to 82.7% of its tariff lines, covering 95.3% of EFTA’s exports to India, with a significant portion being gold. The duty on gold imports remains unchanged.
• Market Access for Non-Agricultural and Agricultural Products: EFTA’s market access offer includes 100% of non-agricultural products and provides tariff concessions on processed agricultural products (PAP).
• Sector-specific Offers: India has opened 105 sub-sectors to EFTA, securing commitments in various sub-sectors from EFTA countries.
• Professional Services: The agreement includes provisions for Mutual Recognition Agreements in professional services, facilitating recognition of qualifications in fields like nursing, chartered accountancy, and architecture among others.

Why Does the India-EFTA Deal Hold Significance?

Economic Growth and Job Creation:

• Investment Boost:
  • The anticipated USD 100 billion in FDI from EFTA countries over 15 years is crucial for India’s infrastructure development, technological advancement, and job creation.
  • 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.
• Trade Expansion :
  • TEPA would stimulate our services exports in sectors such as IT services, business services, personal, cultural, sporting and recreational services, other education services, audio-visual services etc.
• Market Access :
  • Under the India-EFTA free-trade agreement, Indian customers will get access to high-quality Swiss products such as watches, chocolates, biscuits, and clocks at lower prices as India will phase out customs duties under the trade pact on these goods over 10 years.

Strategic and Technological Benefits:

• Geopolitical Significance:
  • The deal strengthens India’s economic ties with Europe, fostering a more multipolar global trade landscape. This reduces dependence on any single trading partner and provides strategic benefits for India.
• Knowledge Sharing and Innovation:
  • The deal can foster knowledge sharing and joint research ventures, accelerating India’s technological development.
  • It facilitates technology collaboration and access to world-leading technologies in precision engineering, health sciences, renewable energy, Innovation and R&D.

Setting a Precedent:

• Template for Future Deals:
  • The successful implementation of the India-EFTA TEPA can serve as a template for future trade agreements with other European nations like the UK and potentially even the EU.
  • 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.
• Free Trade Champion:
  • India’s successful negotiation and signing of the TEPA reinforces its image as a champion of free trade. This can attract further foreign investment and position India as a key player in the global trade arena.

Long-Term Benefits Beyond Just Trade:

• Streamlined Processes:
  • The agreement goes beyond just tariffs, addressing areas like intellectual property rights, services trade, and government procurement. This comprehensive approach fosters a stronger economic partnership with long-term benefits.
  • Commitments related to Intellectual Property Rights in TEPA are at the TRIPS level.
• Sustainable Development:
  • The TEPA incorporates provisions for promoting sustainable development practices in trade and investment. This ensures environmentally conscious growth and aligns with global sustainability goals.

Key Issues in the India-EFTA Agreement

• Exclusion of Sensitive Sectors:
  • India has chosen to protect its agriculture and dairy sectors by excluding them from major tariff reductions under the agreement. Products such as dairy, soya, coal, and other sensitive agricultural items are placed on the exclusion list, meaning they will not benefit from any duty concessions. Additionally, the duty on gold, a significant import from EFTA countries, particularly Switzerland, remains unchanged, potentially limiting benefits for some EFTA exporters.
• USD 100-Million Legal Commitment:
  • The agreement includes a clause that allows India to adjust or suspend duty concessions if EFTA countries fail to meet a USD 100-million investment commitment. This provision serves as a safeguard, ensuring that the anticipated investments materialize.
• Data Exclusivity Concerns:
  • EFTA countries have pushed for data exclusivity, which could hinder Indian generic pharmaceutical companies from accessing data from original drug trials. This could delay the production of generic drugs, including important medications and biologics, as well as preventive treatments for diseases like HIV.
• Income Disparities:
  • The stark difference in per capita income between India (USD 2,500) and EFTA countries (USD 60,000-70,000) raises concerns about equitable opportunities within the free trade agreement. Addressing these disparities is essential to ensure fair benefits for all parties involved.
• Challenges with Non-Tariff Barriers (NTBs):
  • Differing product standards and technical regulations between India and EFTA countries pose significant non-tariff barriers. Harmonizing these standards is crucial to facilitate smoother trade and allow businesses to export without needing extensive product modifications.
• Domestic Resistance in India:
  • Some sectors in India may face increased competition due to imports from EFTA countries, leading to concerns over job security and market fairness. It is important to consider these domestic concerns to maintain a balance between opening markets and protecting local industries.

Strategies for Maximizing the Benefits of the India-EFTA Agreement”

Addressing Asymmetries by Finding Common Ground

• Investment Protection: To create a favorable business environment, the deal should have clauses safeguarding investments, encouraging businesses to invest and operate across markets.
• Phased Reductions: For sectors like agriculture that are sensitive, a gradual reduction in tariffs can be implemented. This gives local producers time to adapt and enhance their competitiveness.
• Compensation Packages: Providing specialized compensation to industries that are adversely affected can mitigate concerns and support restructuring efforts.
• Dispute Resolution Mechanism: Setting up a robust mechanism for resolving trade disputes is essential. This helps prevent issues from escalating into larger conflicts.

Bridging the Regulatory Gap Through Streamlining for Efficiency

• Reduce Non-Tariff Barriers: It’s important to lessen barriers like technical regulations and customs procedures that can obstruct trade.
• Mutual Recognition Agreements (MRAs): By introducing MRAs for certain product categories, products approved in one country will automatically be accepted in the other.
• Joint Technical Committees: Establishing committees focused on aligning technical regulations can speed up the process and ensure uniformity.

Building Capacity By Providing Tools for Growth

• Training and Skill Development: Training customs officials and businesses about the new trade policies will aid in their effective implementation.
• Infrastructure Upgrade: Enhancing customs infrastructure and logistics networks is crucial to manage the expected rise in trade volumes efficiently.

Fostering Collaboration With A Shared Vision

• Regular Stakeholder Dialogues: Continuous discussions among governments, businesses, and civil society are vital for addressing issues and maintaining transparency.
• Knowledge Sharing Programs: Promoting the exchange of knowledge on best practices and technological advancements can drive mutual benefits for both regions.

Conclusion

This deal opens a great opportunity to build a stronger and more united partnership that benefits both sides. It also sets a good example for future trade agreements. As India and EFTA countries start this new journey together, it’s important to keep working together, communicate openly, and share a vision for a successful economic partnership.