INDIA-EFTA TRADE AND ECONOMIC PARTNERSHIP AGREEMENT

Why in the news? 

Recently, the India-European Free Trade Association (EFTA) signed a Trade and Economic Partnership Agreement (TEPA). 

More on the news

• The agreement comprises 14 chapters with the main focus on market access related to goods, rules of origin, trade facilitation, trade remedies, sanitary and phytosanitary measures etc.
• For the first time, India has signed an FTA with Members of EFTA.

What is EFTA?

• About EFTA: The EFTA was established in 1960 through the Stockholm Convention, to promote closer economic cooperation and free trade in Europe.
• Members: Presently, its members are Switzerland, Norway, Iceland, and Liechtenstein, which are not part of the European Union. 
  • Austria, Denmark, United Kingdom, Portugal, Switzerland, Norway, and Sweden were initial members of EFTA.

India-EFTA Trade Relations

• Total Merchandise Trade:  Exceeded US$ 22.33 billion between EFTA and India in 2023.

• India Imported: Natural pearls, precious stone metal etc. (81.7% of the trade).
• India Exported: Organic chemicals, Pearls, precious stones metals etc.

• Largest trading partner among EFTA: Switzerland is the largest trading partner followed by Norway.
  • India has a trade deficit with Switzerland due to gold imports.

Key Highlights of TEPA

• Aim: EFTA aims to:
  • Increase the stock of foreign direct investments by USD 100 billion in India in the next 15 years, and
  • Facilitate the generation of 1 million direct employments in India.
• Legal Commitment: For the first ever time in the history of FTAs, a legal commitment is made about promoting target-oriented investment and the creation of jobs.
• Mutual Recognition Agreements: TEPA has provisions for Mutual Recognition Agreements in Professional Services like nursing, chartered accountants, architects etc.
• Tariff Reduction: EFTA is proposing to eliminate tariffs on 92.2 % of its tariff lines, covering 99.6 % of India’s exports. 
• Market Access: EFTA’s market access offer covers 100% of non-agri products and tariff concession on Processed Agricultural Products (PAP).
• Intellectual Property Rights (IPR) Commitments: The IPR commitments within TEPA are aligned with TRIPS standards, indicating a high level of commitment to IPR protection. 

Key issues regarding TEPA

• Data Exclusivity: Data exclusivity provisions, insisted by EFTA nations, would prevent domestic generic drug manufacturers from utilising data from preclinical tests and clinical trials.
  • India has already rejected data exclusivity provisions.
• Exclusion from Trade Tariffs: India has excluded sensitive sectors like agriculture and dairy from significant tariff reductions, acting as bone of contention in EFTA countries.
  • Sectors such as dairy, soya, coal and sensitive agricultural products are kept on the exclusion list and there will not be any duty concessions on these goods.
• Asymmetric Trade Benefits to EFTA: India agreed to significant tariff reductions on many goods over 10 years, while EFTA countries already have very low tariffs. 
  • This could lead to a wider trade gap with India importing more than it exports.
• Constraint with Investment Obligation: Under TEPA, India has the option to revoke tariff concessions granted to EFTA nations only after 18 years, if they fail to meet a FDI commitment.

Addressing these concerns and effective implementation of the agreement is paramount for the relationship to grow. To future-proof this relationship, additional areas of cooperation can also be outlined. 

Potential areas of cooperation in future

• MSME Integration: Creating initiatives that allow small and medium-sized businesses (MSMEs) to be a part of trade flows and the global market.
• Business Outreach: Both sides can organise workshops and seminars to educate businesses on the agreement's specifics, tariff reductions, and new market opportunities.
• Innovation and Sustainability: Support cooperation in fields including clean technologies, renewable energy, and sustainable practices.

Types of Trade Agreements Early Harvest Scheme: It is a precursor to an FTA/CECA/CEPA between two trading partners. Preferential Trade Agreement (PTA): In a PTA, two or more partners agree to reduce tariffs on agreed number of tariff lines. Example: India-MERCOSUR PTA Free Trade Agreement (FTA): 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. Example: India Sri Lanka FTA Comprehensive Economic Partnership Agreement (CEPA): Along with reduction/elimination of tariffs, it also encompasses agreement covering the regulatory issues.  Example: India has signed CEPAs with South Korea and Japan. Custom Union: In CU partner countries may decide to trade at zero duty among themselves, however they maintain common tariffs against rest of the world.  Example: European Union  Common Market: A common market is a Customs Union with provisions to facilitate free movements of labour and capital, harmonize technical standards across members etc.  Example: European Common Market