Global Trade Agreement

April 30, 2023
Posted by: MME
Category: MME

Background of Trade agreements

India has so far signed 13 Free Trade Agreements (FTAs) with its trading partners, including the 3 agreements, namely India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement (CECPA), India-UAE Comprehensive Partnership Agreement (CEPA) and India-Australia Economic Cooperation and Trade Agreement (Ind Aus ECTA) signed during the last five years. The list of FTAs signed by India is as under:

India-Sri Lanka Free Trade Agreement (FTA)
Agreement on South Asian Free Trade Area (SAFTA) (India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan, the Maldives and Afghanistan)
India-Nepal Treaty of Trade
India-Bhutan Agreement on Trade, Commerce and Transit
India-Thailand FTA – Early Harvest Scheme (EHS)
India-Singapore Comprehensive Economic Cooperation Agreement (CECA)
India-ASEAN CECA – Trade in Goods, Services and Investment Agreement (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam)
India-South Korea Comprehensive Economic Partnership Agreement (CEPA)
India-Japan CEPA
India-Malaysia CECA
India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement (CECPA)
India-UAE CEPA (*)
India-Australia Economic Cooperation and Trade Agreement (ECTA) (*)

(*) Signed, but yet to be implemented.

In addition, India has signed the following 6 limited coverage Preferential Trade Agreements (PTAs):

Asia Pacific Trade Agreement (APTA)
Global System of Trade Preferences (GSTP)
SAARC Preferential Trading Agreement (SAPTA)
India-Afghanistan PTA
India-MERCOSUR PTA
India-Chile PTA

The economic impact assessment of FTAs undertaken both in terms of data analysis and stakeholder consultations from time to time, has revealed that there has been growth in both exports and imports with FTA partners.[1]

In a PTA, two or more partners agree to reduce tariffs on agreed number of tariff lines. The list of products on which the partners agree to reduce duty is called a positive list. India MERCOSUR PTA is such an example. However, in general PTAs do not cover substantially all trade. In comparison, FTAs are arrangements between two or more countries or trading blocs that primarily agree to reduce or eliminate customs tariff and non-tariff barriers on substantial trade between them. FTAs normally cover trade in goods (such as agricultural or industrial products) or trade in services (such as banking, construction, trading, etc). FTAs can also cover other areas such as intellectual property rights (IPRs), investment, government procurement and competition policy, etc. In FTAs, tariffs on items covering substantial bilateral trade are eliminated between the partner countries; however, each maintains individual tariff structure for non-members. India-Sri Lanka FTA is an example for this. The key difference between an FTA and a PTA is that while in a PTA there is a positive list of products on which duty is to be reduced, in an FTA, there is a negative list on which duty is not reduced or eliminated. Thus, compared to a PTA, FTAs are generally more ambitious in coverage of tariff lines (products) on which duty is to be reduced.

Exporters prefer FTAs to multilateral trade liberalisation because they get preferential treatment over non-FTA member country competitors. For example, in the case of ASEAN, ASEAN has an FTA with India but not with Canada. ASEAN’s custom duty on leather shoes is 20% but under the FTA with India, it reduced duties to zero. Now assuming other costs being equal, an Indian exporter, because of this duty preference, will be more competitive than a Canadian exporter of shoes. Secondly, FTAs may also protect local exporters from losing out to foreign companies that might receive preferential treatment under other FTAs.

Comprehensive Economic Cooperation Agreement (CECA)

CECA and CEPA, these terms describe agreements that consist of an integrated package on goods, services and investment along with other areas including IPR, competition, etc. The India-Korea CEPA is one such example and it covers a broad range of other areas like trade facilitation and customs cooperation, investment, competition, IPR, etc. A CECA or a CEPA is different from a traditional FTA on two counts. Firstly, CECAs/CEPAs are more comprehensive and ambitious that an FTA in terms of coverage of areas and the type of commitments. While a traditional FTA focuses mainly on goods, a CECA/CEPA is more ambitious in terms of a holistic coverage of many areas like services, investment, competition, government procurement, disputes, etc. Secondly, CECA/CEPA looks deeper at the regulatory aspects of trade than an FTA.

CEPAs also help in paving the way for more economic solutions and improvements in terms of export items, investments, and service quality. Joint expansion of economic interests and opportunities for both countries can also be feasible if it is a part of the terms and conditions with the agreements. Overall, it improves economic relationships between the two governments and their people.

The objectives of this Agreement, as elaborated more specifically through its principles and rules are to:

(a) liberalise and facilitate trade in goods and services and expand investment between the Parties;

(b) establish a cooperative framework for strengthening and enhancing the economic relations between the Parties;

(c) establish a framework conducive for a more favourable environment for their businesses and promote conditions of fair competition in the free trade area;

(d) establish a framework of transparent rules to govern trade and investment between the Parties;

(e) create effective procedures for the implementation and application of this Agreement;

(f) explore new areas of economic cooperation and develop appropriate measures for closereconomic partnership between the Parties;

(g) improve the efficiency and competitiveness of their manufacturing and services sectors and expand trade and investment between the Parties; and

(h) establish a framework for further regional and multilateral cooperation to expand and enhance the benefits of this Agreement throughout Asia, and thereby, to encourage the economic integration of Asian economies.

CEPAs ENTERED BY INDIA

India has entered into lot of multilateral and bilateral trade agreements. India has entered into following CEPA

India & Japan CEPA:

The Comprehensive Economic Partnership Agreement (CEPA) between India and Japan was signed on 16th February, 2011 and came into force from 1st August of the same year. Apart from accelerating business activities, the deal aimed to eliminate tariffs on 90 percent of Japanese exports to India, such as auto parts and electric appliances, and 97 percent of imports from India, including agricultural and fisheries products, until 2021. The CEPA has the greatest positive influence on India-Japan ties in the areas of commerce and investment. The CEPA has undoubtedly increased bilateral trade, which was previously much below its potential. Trade between the two nations was about USD 13.4 billion in FY2010-11. However, it reached USD 18.3 billion in FY2011-12, just months after the CEPA went into force. The bilateral trade is expected to rise further as the CEPA enters the last phase of tariff removal.

India & South Korea CEPA:

The Indo-Korea CEPA was signed in 2009 and put into effect in 2010. Goods, services, investments, bilateral cooperation, intellectual property rights, and competition are all covered under the agreement. Since its implementation, the CEPA has sparked economic development, resulting in a 42 percent rise in two-way commerce from US$12 billion in 2009-10 to US$17 billion in 2012- 13. By 2015, the trade volume is estimated to exceed US$40 billion. This increase may be linked to India’s strong economic growth, which has increased trade and investment prospects for Korean companies, notably in the automotive, steel, and electronic industries.

India & Australia CEPA:

India-Australia Economic Cooperation and Trade Agreement (Ind-Aus ECTA), which was signed on 2 April 2022 and entered into force on 29 December 2022.The agreement strengthens the relationship between India and Australia while making Australian exports to India cheaper and creating huge new opportunities for workers and businesses. As per the agreement, Tariffs will be eliminated on more than 85 per cent of Australian goods exports to India (valued at more than $12.6 billion a year), rising to almost 91 per cent (valued at $13.4 billion) over 10 years. India and Australia signed the Economic Cooperation and Trade Agreement (ECTA), a landmark bilateral trade agreement.[2] Prime Ministers Morrison and Modi decided to re-engage on a bilateral agreement in June 2020, as part of the Joint Statement on a Comprehensive Strategic Partnership between India and Australia, while appropriately considering earlier bilateral discussions, where a mutually agreed way forward can be found. This agreement is a win-win situation for both parties since it ensures an uninterrupted supply of essential goods to Indian businesses, while Australia gains a more dependable alternative to China, which has imposed bans on Australian exports such as coal, meat, seafood, wine, and barley. China has dominated the Australian market for leather products, footwear, toys, medicines, textiles, and plastics. Now the India-Australia Economic Cooperation and Trade Agreement could make India a reliable alternative. Largely, India imports key raw materials from Australia and exports finished products.

India & UAE CEPA:

India-UAE CEPA was signed during the India-UAE Virtual Summit on February 18, 2022. The agreement has taken effect from May 1, 2022. CEPA establishes a framework for encouraging and improving commerce between the two nations. The CEPA is expected to benefit around $26 billion in Indian goods that are now subject to a 5% import charge by the UAE, India’s third-largest trade partner after the United States and China. In the next five years, it is predicted that bilateral commerce would expand from $60 billion to $100 billion as a result of the CEPA. Indian exporters would get access to the considerably bigger Arab and African markets as a result of the agreement. UAE is India’s third largest supplier of crude oil and second largest supplier of LPG and LNG. Renewable energy is the next stop for bilateral energy ties. This agreement may also give a boost to India’s jewellery exports and is also expected to create new jobs, raise living standards, and provide wider social and economic opportunities in both nations.

Foreign investment INFLOW

The following pie chart shows FDI Equity Inflow in India from the countries namely Japan, UAE, South Korea and Australia.

INDIA- UAE TRADE AGREEMENT

India-UAE commerce, which was valued at US$ 180 million a year in the 1970s, has grown to US$ 59 billion in 2019-20, becoming UAE India’s third largest trading partner after China and the United States. Furthermore, with almost US$ 29 billion in exports for the year 2019-20, the UAE is India’s second largest export destination (after the US). With an annual trade volume of roughly US$ 41.43 billion, India is the UAE’s second largest trading partner in 2019. (non-oil trade). Petroleum Products, Precious Metals, Stones, Gems & Jewellery, Minerals, Food Items, Textiles, Engineering & Machinery Products, and Chemicals are among India’s top exports to the UAE. Petroleum and Petroleum Products, Precious Metals, Stones, Gems & Jewellery, Minerals, Chemicals, and Wood & Wood Products are among India’s key imports from the UAE. The UAE’s investment in India is estimated to be around US $ 17-18 billion of which US 11.67 billion is in the form of FDI while the remaining is portfolio investment.

The CEPA with the UAE covers trade in goods, trade in services, rules of origin, technical trade barriers, sanitary and phytosanitary measures, dispute settlement, movement of natural persons, telecommunications, customs procedures, pharmaceutical products, government procurement, intellectual property rights, investment, digital trade, and other areas of cooperation. It is expected to operate as a catalyst for strengthening economic relations between the two countries, which have a history of fulfilling each other’s visions for success. Both nations are expected to gain major economic benefits as a result of agreement, including improved access to excellent education, lower customs duties, easier access to respective markets, and the free movement of skilled labour to support these economic endeavours.

Benefits of India- UAE Agreement

The CEPA between India and the UAE covers nearly all of India’s (11,908 tariff lines) and the UAE’s (7581 tariff lines) tariff lines, respectively. India will benefit from the UAE’s preferential market access on over 97 percent of its tariff lines, which account for 99 percent of Indian exports to the UAE in value terms, particularly in labour- intensive industries like gems and jewellery, textiles, leather, footwear, sports goods, plastics, furniture, agricultural and wood products, engineering products, medical devices, and automobiles. In addition, India would grant the UAE preferential access to over 90% of its tariff lines, including lines of export interest to the UAE.

Around $26 billion in Indian products are projected to profit from the trade agreement, which is subject to a 5% import charge by the UAE.
The UAE will eliminate customs levies on approximately 80% of the items, accounting for 90% of India’s value-added exports to the Gulf nation.
India anticipates CEPA to create ten lakh employment in labor-intensive industries including textiles, gems and jewellery, leather, footwear, pharma, farm products, medical gadgets, sports goods, and autos.
The CEPA encompasses 11 service sectors and over 100 sub-sectors, including business services, telecommunications, construction, education, tourism, nursing, and finance, to name a few.
The agreement’s scope is broad, encompassing topics such as government procurement, digital trade, and intellectual property rights.
To protect domestic producers, India has excluded dairy, fruit, cereals, vegetables, tea, coffee, tobacco, dyes, soaps, footwear, petroleum, tyres, toys, aluminium scrap, copper, and processed marble from the trade agreement.
The trade agreement also includes a permanent safeguard mechanism that will protect exporters and businesses from both countries from any unjustified surge in volume of any particular product.
The CEPA, for the first time in a trade agreement, provides for the automatic registration and marketing authorization of Indian generic pharmaceuticals within 90 days of their approval in any developed country.
India has granted tax exemptions on gold imported from the UAE, and Indian exporters would have zero duty access to the UAE market for jewellery, which was previously 5%.
CEPA establishes a permanent bilateral safeguard system to deal with an unexpected rise in imports of any product, which is significant given that the two nations account for nearly 16 percent of world commerce in diamonds, gold, and jewellery. It also includes strict ‘rules of origin,’ which reflect requirements for significant processing of up to 40% value addition and are in line with other trade agreements already in effect.
UAE gold bars and Indian jewellery will gain significant benefits. India buys around 800 tonnes of gold every year, with jewellery exports expected to expand by 200 percent in the next three years.
It also helps the education sector, which was formerly liable to 5% duty on Indian jewels. The UAE will obtain its first IIT, which will be the first outside of India
The United Arab Emirates has pledged $75 billion to India’s infrastructure development.
This agreement would boost non-oil trade with India while also strengthening the market for new environmental and digital trade investment.

CONCLUDING REMARK

The historic India-UAE Comprehensive Economic Partnership Agreement (CEPA) which was signed between the two nations on 18 February 2022, officially entered into force on 1^st May, 2022.

The Comprehensive Economic Partnership Agreement with UAE is India’s first complete free trade agreement to be signed with any country in a decade. The negotiations between India and UAE were concluded in a record span of 88 days, and the CEPA was operationalised on 1 May 2022. It is expected to benefit around $26 billion in Indian goods that are now subject to a 5% import charge by the UAE, India’s third-largest trade partner after the United States and China. This agreement may also give a boost to India’s jewellery exports and is also expected to create new jobs, raise living standards, and provide wider social and economic opportunities in both nations.

The way ahead for India- UAE is as follows:

The India-UAE CEPA will further cement the already deep, close and strategic relations between the two countries and will create new employment opportunities, raise living standards, and improve the general welfare of the peoples of the two countries.
Further, both countries need to identify clear areas of focus and establish ways of working together to resolve trade remedy cases.
Gems & Jewellery sector contributes a substantial portion of India’s exports to the UAE and is a sector that is expected to benefit significantly from the tariff concessions obtained for Indian products under the India-UAE CEPA.
Overall, India will benefit from preferential market access provided by the UAE on over 97 % of its tariff lines which account for 99% of Indian exports to the UAE in value terms particularly from 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. As regards trade in services, Indian service providers will have enhanced access to around 111 sub-sectors from the 11 broad service sectors.
CEPA is expected to increase the total value of bilateral trade in goods to over US$100 billion and trade in services to over US$ 15 billion within five years.