Why is the India-UAE trade deal significant?

The India-UAE CEPA is the first comprehensive trade agreement signed by the BJP government since it came to power in 2014. With free trade agreements and regional trading blocs mushrooming worldwide, India has been feeling the need to get into such arrangements with suitable trade partners so as not to lose out on the preferential access to important markets that competitors are benefitting from.

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 is encouraging. This would erode the tariff advantage enjoyed by smaller economies such as Bangladesh and Vietnam 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. Sealing the CEPA with the UAE 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.

What are the 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. Chapters on digital trade, government procurement and IPR have been included for the first time by India in a trade agreement. But 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.

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.

What is the extent of tariff reduction in goods?

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. On the other hand, 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.

Which are the sectors that are going to benefit from this deal?

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. In fact, the CEPA is likely to increase the competitiveness of Indian products worth an estimated $26 billion that are currently subjected to 5 per cent import duty by the UAE. The services sector could also see substantial gains.

What is the current level of India-UAE trade?

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.

How is it expected to grow post the trade agreement?

Both countries hope to nearly double bilateral trade in goods to $100 billion over five years and achieve services trade worth $15 billion. Per ‘conservative’ estimates made by India, the increased trade is likely to create 10 lakh jobs in India in sectors such as textiles, pharmaceuticals, gems & jewellery, plastic products, auto and leather.