India and IFTA have now ratified the Tripartite Economic Partnership Agreement, pledging to promote trade and investment while promoting further and sustainable development.
India signed the Trade and Economic Partnership Agreement (TEPA) on 10 March 2024 with the European Free Trade Association (EFTA), which includes Switzerland, Norway, Iceland and Liechtenstein. This free trade agreement was finally decided after 21 rounds of negotiations since 2008. , pledged to increase cooperation in trade, investment promotion, intellectual property and sustainable development, among other areas. A distinctive feature of this agreement stems from the binding commitment of US$100 billion by European nations, to be invested over the next 15 years, resulting in more than 1 million direct jobs. It is necessary to assess the mutual promises made in TEPA, what all parties stand to gain and how India can leverage it to strengthen its trade balance.
Invigorating Investment
The EFTA nation's net FDI inflow to India from April, 2000 to December, 2023 is about US$10.8 billion, which TEPA promises to increase to US$100 billion over the next 15 years. This would also significantly increase EFTA's share of India's FDI stock, indicating the need to direct these investments to efficient sectors. The plan to strengthen their foothold in the Indian economy was inspired by India's record growth in the post-pandemic period and they expect to achieve a 3-percent outperformance margin on their investment. However, the focus on creating direct jobs in India means there will be mutual benefits.
While India needs to create an environment conducive to foreign investment, TEPA also focuses on areas of cooperation that can exploit the complementarities of these economies. This includes removing barriers, identifying opportunities, technical cooperation and enabling joint ventures among medium, small and micro enterprises (MSMEs). Given the ubiquity of MSMEs in the market and their important role in generating employment, this will greatly benefit India. TEPA will also boost the Make in India initiative by increasing demand for manufactured goods, which will significantly improve the trade balance with EFTA nations.
Directing FDI to the service sector can have two-level benefits, such as increasing employment in business-as-usual conditions as well as expanding the base of Switzerland's activities in the European Union. The integration of Indian and European service markets can systematically affect the level of prosperity in Indian society by increasing the wages of the skilled middle class. Services such as research and development (R&D) are also not overlooked in the agreement, which highlights the protection of intellectual property rights. Indian priorities are outlined in the agreement with the entire department addressing the issue of sustainable development.
Impact on Pricing and Market Access
The agreement specifies tariff reductions on various products over time. For example, wines priced between $5 and less than $15 will see a duty reduction from 150 percent to 100 percent in the first year, gradually decreasing to 50 percent over 10 years. Tariffs on cut and polished diamonds will be reduced from 5 percent to 2.5 percent in five years. However, there is no effective tariff concession on gold, as the effective duty remains at 15 percent.
Benefits for Indians
The agreement is expected to benefit Indian consumers, as the government will phase out customs duties on imported goods over time. With this move, domestic consumers will be able to get high quality Swiss products such as watches, chocolates, biscuits and watches at lower prices.
SACOPE, limited in coverage and commitments
Most EFTA countries' trade agreements are low in ambition and focus on limited areas of their export interest in terms of their scope and coverage. These trade agreements can be customized according to the needs of the trading partners. TEPA follows similar trends. It is a less ambitious agreement compared to the ones India is negotiating with the United Kingdom (UK) and the European Union (EU), but also in the context of the recently signed India-UAE Comprehensive Economic Partnership Agreement (CEPA). For example, TEPA does not cover chapters such as digital trade and e-commerce, or bilateral cooperation in pharmaceutical products or micro, small and medium enterprises (MSME), which are part of the India-UAE CEPA.2 In fact, e-commerce and digital trade Exclusions covered in over 100 FTAs are unique to this agreement. The text of TEPA chapters has been customized keeping in mind the local sensitivities of India. For example, the Trade and Sustainable Development (TSD) chapter in TEPA does not include enhanced enforcement or dispute settlement mechanisms, unlike the TSD chapter of EU trade agreements. Further addressing India's concerns, the chapter includes restrictions on the use of environmental and labor measures as disguised restrictions on trade.
Support for sustainability
TEPA clearly states that all trade will adhere to sustainable standards, which prioritize environmental protection while also ensuring inclusiveness of economic growth. The parties to this agreement are completely free to design their own environmental and labor laws, but they should not affect the non-discriminatory nature of trade. In addition, the importance of a gender perspective is acknowledged with a commitment to follow the guidelines of the International Labor Organization (ILO). Given the goals set by the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement, nations have agreed to cooperate bilaterally to achieve these goals.
Three between India and IFTA nations
Over the past two decades, total trade between the EFTA States and India has been steadily increasing. In 2023, the combined EFTA-India trade volume was USD 5.5 billion. Primary imports to EFTA states include organic chemicals (30.7%), while machinery (20%) and pharmaceutical products (10.7%), excluding gold, are India's main exports. In addition, trade in services and foreign direct investment have also reached significant levels.
Background
On March 10, 2024, India achieved a historic milestone by signing a major trade agreement with the European Free Trade Association (EFTA), which includes Iceland, Liechtenstein, Norway and Switzerland.
The signing ceremony in New Delhi saw the participation of distinguished delegates including Guy Parmelin, Swiss Federal Councillor; Bjarni Benedictson, Minister of Foreign Affairs of Iceland; Dominik Hassler, Minister of Foreign Affairs of Liechtenstein; and Jan Christian Vestre, Norwegian Minister of Trade and Industry. The Indian delegation was led by the Union Minister of Commerce and Industry Shri Piyush Goyal.
The successful conclusion of the agreement comes after 21 rounds of negotiations spanning 15 years. Negotiations began in January 2008 and proceeded through thirteen rounds until November 2013, after which negotiations were suspended. However, negotiations resumed in October 2023 and the agreement was quickly completed in fast-track mode.
nations have agreed to cooperate bilaterally to achieve these goals
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