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India signed its first free trade agreement (FTA) with European countries earlier this month. Called the Trade and Economic Partnership Agreement (TEPA), signed with the European Free Trade Association (EFTA) grouping of four countries — Iceland, Liechtenstein, Norway and Switzerland, it is another step towards trade and investment liberalisation with select partners.
Together, EFTA has a market of only 14.65 million people, but they are capital rich with high investment potential. The highlight of TEPA is a commitment by companies in these countries to inject fresh FDI of $50 billion into India in 10 years and $100 billion in 15 years, which is expected to generate direct employment to one million. In comparison, from the year 2000, inward FDI from this group add up to only $10 billion.
TEPA advances India’s evolving FTA template. Tariff elimination or reduction is offered in several areas but sensitive sectors are shielded. Giving space for our manufacturing under PLI schemes to grow is also a factor. Still, India’s offer provides substantial opportunities for the FTA partners, considering our relatively higher tariff levels. In return, we seek fuller access in their markets.
Through TEPA, India will have full and free access to the EFTA market for industrial products, but not for sensitive items in agriculture. In all, 92.2 per cent of their tariff lines covering 99.6 per cent of India’s existing exports will benefit. That said, TEPA will only offer a level-playing field to Indian exporters since EFTA’s FTA coverage is already extensive with 29 existing FTA partners (that also includes a few FTA groupings like the EU) apart from individual members like Switzerland being parties to a few more. Even so, India’s exports of chemicals, garments, jewellery, steel and machinery items can gain to some extent. Even fresh vegetables, fruits and flowers have improved access with some receiving freer access during off-season.
India is offering tariff concessions on 82.7 per cent of its tariff lines, covering 95.3 per cent of imports from EFTA. Switzerland will not, however, benefit for its gold exports, accounting for 80 per cent of its total, since reduction under TEPA will be only 1 per cent from bound rate (of 40 per cent, while the MFN applied rate is much lower). But it will benefit from its exports of chocolates, wines, chemicals, pharmaceuticals, watches and machinery items. For Norway, the other major exporter in EFTA, benefits will accrue for its exports of fish, chemicals, petroleum gases, fertilizers and certain machinery items. Unwrought nickel, a substantial item, is however imported into India at nil MFN duty.
On services, the commitments made are on India’s preferred positive list basis. All four modes are covered with improved market access for several services. India has made commitments in 105 sub-sectors (against a total of 155) as against Switzerland’s 128, Norway’s 114, Liechtenstein’s 107 and Iceland’s 110.
A horizontal commitment by all EFTA countries on movement of natural persons also include intra corporate transferees and contractual service providers. Norway and Switzerland also have committed on movement of individual professionals. There will be no labour market and economic needs testing for their entry. There is however no further provision on social security beyond stating that respective domestic laws shall apply. Provision for mutual recognition of qualification or licences for practice is also generally worded.
The Ministry of Commerce is hoping that the FTA will stimulate our IT, business, personal, cultural, and recreational services exports.
Areas of departure
Noteworthy also are certain areas of departure in TEPA in relation to India’s earlier FTAs. The rules of origin are, as EFTA itself has claimed, designed more on their model. There are also new concepts included such as providing for ‘chemical reaction’ as conferring origin for certain chemical products. However it appears that India’s products of particular strength and interest like cut and polished diamonds (CTSH + 6 per cent value addition) have been suitably tailored to our requirements.
The chapter on intellectual property confines itself largely to TRIPS standards but amplifies on enforcement. Noteworthy, particularly of relevance to the pharma sector, is a record of understanding on data protection that is integral to the agreement. It calls for both EFTA and India to enter into consultations one year after entry into force of TEPA to discuss ‘issues relating to protection of undisclosed information from unfair commercial use’.
The chapter on government procurement is rather brief exchanging only points of contact, unlike the FTA with the UAE that provided for some market access. However, there is a commitment by both sides to examine within three years the possibility of developing and deepening cooperation in this area.
For the first time in an FTA, India has agreed to have a detailed chapter on Trade and Sustainable Development that covers environment and labour standards, even if largely in consonance with multilateral environment agreements and ILO standards, and due consideration for gender. These provisions will not be subject to dispute settlement but issues if any can be taken up in consultations and the joint committee under TEPA. Provisions on labour standards, however, have also figured in the IPEF supply chain agreement signed last year.
Both India and EFTA have also given themselves the possibility to review and further deepen TEPA in case the other party enters into FTAs with third parties offering more favourable terms. EFTA could, for example, seek a review if India’s future FTAs with the UK or the EU carry deeper concessions.
How did EFTA and India, between whom FTA negotiations began in 2008, paused in 2013, and recommenced only six months ago managed to move so quickly to the finish before the election announcement? The momentum of interest in India could be a factor. Perhaps they also wanted to get the first-mover advantage among European countries. The speed is also discernible in their decision to keep negotiations on government procurement to a later date. For India, the investment commitment by EFTA must have been attractive. It could also help if this prods the UK and EU to be more forthcoming in their negotiations.
Finally, an FTA can only be an enabler. It is important for our trade and industry to study and make best use of its provisions with appropriate strategising.
The writer is former Ambassador and Senior Fellow Delhi Policy Group
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