India and the United Arab Emirates signed a Comprehensive Economic Partnership Agreement (CEPA) on February 18 during a virtual summit led by Prime Minister Narendra Modi and Crown Prince of Abu Dhabi Sheikh Mohamed bin Zayed Al Nahyan. It would cover goods, services and digital trade, among others and allow 90% of the country’s exports a duty-free access to the Emirates. The CEPA is likely to benefit about $26 billion worth of Indian products that are currently subjected to 5% import duty by the UAE, India’s third-biggest trading partner behind the US and China. The bilateral trade pact is India’s first in the region and the first comprehensive trade agreement with any country in a decade. Also the India-UAE CEPA is the first comprehensive trade agreement signed by the BJP government since it came to power in 2014. However, finalization of the CEPA and signing an agreement in this regard in a record time of 88 days will give India greater confidence in pursuing the ongoing FTA negotiations with trade partners such as the UK, Canada, Australia and the EU.
The advantages of India-UAE CEPA would be as follows:
- Although UAE’s average tariffs on goods are low, the highest slab being 5 per cent, the fact that these tariffs will be immediately eliminated on 90 per cent of traded goods.
- CEPA would enhance the competitiveness of Indian products vis-à-vis smaller economies such as Bangladesh and Vietnam which enjoy tariff advantage in the UAE. These countries compete with India for market share in items like garments, footwear and gems & jewellery, resulting in greater market opportunities for India.
- The pact will also provide wider access to the much larger Arab and African markets for Indian businesses.
Salient features of the agreement
- The India-UAE CEPA covers commitments in trade in goods, trade in services, technical barriers to trade, dispute settlement, telecom, customs procedures and pharmaceuticals.
- For the first time, chapters on digital trade, government procurement and IPR have been included for the first time by India in a trade agreement. These would be followed mostly only on a ‘best endeavour’ basis where disputes cannot be filed.
- Also, a separate annexe on pharmaceuticals has been incorporated to facilitate access to Indian pharmaceutical products for the first time.
- The agreement has stringent rules of origin and value addition norms to prevent third-country imports for making their way into India from the UAE, a global trading hub, at concessional duties.
- Import duties will be brought down to zero per cent on 90 per cent of India’s exports to the UAE (over 80 per cent of total tariff lines) immediately on implementation of the pact and 97 per cent of tariff lines over the next five years.
- India will bring down import duties on about 65 per cent of tariff lines immediately and on 90 per cent of tariff lines in 10 years. India has also agreed to give the UAE a tariff-rate quota of 200 tonnes on gold, where import duty will be one percentage point less than the tariff charged for the rest of the world.
- To protect sensitive sectors where increased competition may hurt livelihoods, India has placed 10 per cent of tariff lines in the negative list that would not be subject to tariff cuts. The items include dairy, fruits, vegetables, cereals, tea, coffee, sugar, food preparation, tobacco, petroleum waxes, auto and auto components, coke, dyes, soaps, natural rubber, tyres, footwear, processed marbles, toys, plastics, and medical devices.
- Indian exporters are likely to make substantial gains in labour-intensive sectors such as gems and jewellery, textiles, leather, footwear, sports goods, plastics, furniture, agricultural and wood products, engineering products, pharmaceuticals & medical devices and automobiles.
- India-UAE bilateral trade declined to $44 billion in 2020-21 due to the pandemic compared to the pre-pandemic levels of about $60 billion. In 2021-22, however, there seems to be a recovery with two-way trade in April-December at $52.76 billion. Exports from India were at $20 billion, while imports from the UAE were $32.7 billion. India’s significant import from the UAE was petroleum and related products, precious metals, stones, gems & jewellery and chemical products while it exported mineral fuels and oils, pearls, precious stones, metals, and coins, electric & electronic equipment and apparel. Both countries hope to nearly double bilateral trade in goods to $100 billion over five years and achieve services trade worth $15 billion.
There are different types of trade agreements and India. The most popular types of trade agreements include Free Trade Agreement, Comprehensive Economic Cooperation Agreement and Comprehensive Economic Partnership Agreement etc. A Free Trade Agreement is a pact between two or more nations to reduce barriers to imports and exports among them. Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
CEPA stands for Comprehensive Economic Partnership Agreement and CECA stands for Comprehensive Economic Cooperation Agreement. India signed CECA with Singapore and Malaysia. India had also signed a Comprehensive Economic Partnership Agreement (CEPA) with South Korea and Japan. The terms that make difference are “Cooperation” and “partnership”. Both these terms are synonymous with each other but the major “technical” difference between a CECA and CEPA is that CECA involves only “tariff reduction/elimination in a phased manner on listed / all items except the negative list and tariff rate quota (TRQ) items” , CEPA also covers the trade in services and investment, and other areas of economic partnership. So CEPA is a wider term that CECA and has the widest coverage.
Both these terms are synonymous with each other but the major “technical” difference between a CECA and CEPA is that CECA involves only “tariff reduction/elimination in a phased manner on listed / all items except the negative list and tariff rate quota (TRQ) items” , CEPA also covers the trade in services and investment, and other areas of economic partnership. So CEPA is a wider term that CECA and has the widest coverage. CECA is usually an earlier stage of economic integration followed usually by a higher level of economic integration through CEPA.
India’s other Trade Agreements
India has been making efforts since long to have trade agreements with its trading partners to promote trade and bilateral economic cooperation. Here is a list of some of such agreements:
A Framework Agreement on Economic Cooperation between Republic of India and Gulf Cooperation Council was signed on 25th August, 2004. The Framework Agreement provided that both the parties shall consider ways and means for extending and liberalizing the trade relations and also for initiating discussions on the feasibility of a Free Trade Agreement between them. Accordingly, negotiations commenced with GCC. Accordingly, negotiations commenced with GCC. Two rounds of negotiations have been held so far in 2006 and 2008.
India has bilateral trade agreements with Afghanistan, ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam), Bhutan, Chile, Japan., Malaysia, Mercosur (Argentina, Brazil, Paraguay, Uruguay and Venezuela) and Nepal.
The Framework Agreement on Comprehensive Economic Cooperation between ASEAN and India was signed in October 2003 and served as legal basis to conclude further agreements, including Trade in Goods Agreement, Trade in Services Agreement, and Investment Agreement that form the ASEAN-Indian Free Trade Area (AIFTA) The ASEAN-India Trade in Goods Agreement was signed and entered into force on 1 January 2010. Under the Agreement, ASEAN Member States and India have agreed to open their respective markets by progressively reducing and eliminating duties on 76.4% coverage of good. The ASEAN-India Trade in Services Agreement was signed in November 2014. It contains provisions on transparency, domestic regulations, recognition, market access, national treatment and dispute settlement. The ASEAN-India Investment Agreement was also signed in November 2014. India signed a Comprehensive Economic Partnership Agreement with South Korea on August 7, 2009.
The Comprehensive Economic Cooperation Agreement (CECA) between Malaysia and India was signed in October 2010. The Comprehensive Economic Cooperation Agreement (CECA) between India and Singapore was signed on 29th June, 2005 by the Prime Minister Mr. Manmohan Singh and H.E. Mr. Lee Hsien Loong, Prime Minister of Singapore. The CECA has become operational with effect from 1-8-2005. Comprehensive Economic Cooperation Agreement (CECA). The CECA eliminated tariff barriers, double taxation, duplicate processes and regulations and provided unhindered access and collaboration between the financial institutions of Singapore and India. The CECA also enhanced bilateral collaboration related to education, science and technology, intellectual property, aviation, information technology, and financial fields. Japan and India have signed a bilateral free trade agreement. The deal intended to eliminate tariffs on 90 percent of Japanese exports to India, such as electric appliances, and 97 percent of imports from India until 2021.
India- South Korea Comprehensive Economic Partnership Agreement (CEPA) was signed on August 7, 2009. It was signed by the then Indian Commerce Minister, Anand Sharma and South Korean Commerce Minister, Kim Jong-Hoon in Seol. The negotiations began in February 2006 and it was passed by the respective parliaments of both the countries in November 2009 and it came into effect sixty days later, on January 1, 2010. It commits both countries to lower or eliminate import tariffs on a wide range of goods, over the next 10 years and expand opportunities for investments and exchanging services. ROK is phasing out or reducing tariffs on 90 percent of Indian goods over the next decade, while India will do so on 85 percent of Korean goods.
Government of Japan decided at its Cabinet Meeting to sign the Comprehensive Economic Partnership Agreement with India on India February 15, 2011.
It is expected that this Agreement will promote the liberalization and facilitation of trade and investment between the two countries and will further vitalize both economies by strengthening reciprocal economic ties in wide-ranging fields. The bilateral free trade agreement would abolish duties on more than 90 per cent of trade for ten years. The deal would eliminate tariffs on 90 percent of Japanese exports to India, such as electric appliances, and 97 percent of imports from India until 2021.
A Framework Agreement was signed between India and MERCOSUR on 17th June 2003 at Asuncion, Paraguay to create conditions and mechanisms for negotiations by granting reciprocal tariff preferences in the first stage and, in the second stage, to negotiate a free trade area between the two parties. As a follow up to the said Framework Agreement, a PTA between India and MERCOSUR was signed in New Delhi on January 25, 2004 and five annexes to this Agreement were signed and incorporated on March 19, 2005. The first two Annexes of the PTA relate to the list of products on which the two sides have agreed to give fixed tariff preferences to each other. The remaining three Annexes relate to the Rules of Origin, Preferential Safeguard Measures and Dispute Settlement Procedures respectively. By this PTA, India and MERCOSUR have agreed to give tariff concessions, ranging from 10% to 100% to the other side on 450 and 452 tariff lines respectively. The India-MERCOSUR PTA has become operational with effect from 1st June, 2009.
On 28th June 2007, India and the EU began negotiations on a broad-based Bilateral Trade and Investment Agreement (BTIA) in Brussels, Belgium. These negotiations are pursuant to the commitment made by political leaders at the 7th India-EU Summit held in Helsinki on 13th October 2006 to move towards negotiations for a broad-based trade and investment agreement on the basis of the report of India-EU High Level Technical Group.
India and the EU expect to promote bilateral trade by removing barriers to trade in goods and services and investment across all sectors of the economy. Both parties believe that a comprehensive and ambitious agreement that is consistent with WTO rules and principles would open new markets and would expand opportunities for Indian and EU businesses.
The negotiations cover Trade in Goods, Trade in Services, Investment, Sanitary and Phytosanitary Measures, Technical Barriers to Trade, Trade Remedies, Rules of Origin, Customs and Trade Facilitation, Competition, Trade Defence, Government Procurement, Dispute Settlement, Intellectual Property Rights & Geographical Indications, Sustainable Development. So far, 15 rounds of negotiations have been held alternately at Brussels and New Delhi. The last meeting was held in the week of 13th May, 2013 in New Delhi.