Winds Of Change: Exploring The India-EFTA Trade And Economic Partnership Agreement

On March 10, 2024, after 15 years of negotiations, the India-European Free Trade Association (EFTA) successfully concluded a Trade and Economic Partnership Agreement (TEPA). EFTA, an inter-governmental organisation founded in 1960 to promote free trade and economic integration, serves as a platform for its four Member States: Iceland, Liechtenstein, Norway, and Switzerland.

The TEPA, which was signed by the EFTA States and India, is poised to bring about significant economic benefits, such as better integration and resilience of supply chains, new opportunities for businesses and individuals on both sides and increased trade and investment flows. As a result, this agreement is expected to drive job creation and foster economic growth.

The successful conclusion of the TEPA underscores the commitment of the EFTA States and India to promote free trade and economic integration. It is a testament to the benefits of sustained diplomatic efforts and underscores the value of international cooperation in achieving shared goals.

The agreement includes 14 chapters that mainly focus on market access for goods, rules of origin, trade facilitation, trade remedies, sanitary and phytosanitary measures, technical barriers to trade, investment promotion, market access for services, intellectual property rights, trade and sustainable development, and other legal and horizontal provisions.

Key Highlights of the Agreement

Foreign Direct Investment

The EFTA has committed to promoting investments in India, with the objective of increasing the stock of foreign direct investments by USD 100 billion over the next 15 years. The primary purpose of this initiative is to facilitate the generation of one million direct employments in India through such investments. It is pertinent to note that the investments made under this initiative will not cover foreign portfolio investments.

This pledge by the EFTA underscores its commitment to fostering economic growth and development in India through the promotion of foreign direct investments. The EFTA seeks to leverage its expertise and resources to support India's economic aspirations, particularly in the creation of direct employment opportunities. By focusing on foreign direct investments, the EFTA aims to promote sustainable economic development that benefits the people of India and the wider global community.

Facilitation of Job Creation

In an unprecedented move, the FTA has included a legal commitment to foster target-oriented investment and facilitate job creation. The explicit inclusion of such provisions in the FTAs is expected to provide a conducive environment for investors and businesses while addressing the critical issue of unemployment in the global economy. This development is also a testament to the growing recognition of the interdependence between trade, investment, and job creation in today's complex economic landscape.

TEPA endeavours to expedite the creation of a substantial number of direct employment opportunities for India's young and ambitious workforce within the next 15 years. It also seeks to enhance the quality of vocational and technical training facilities nationwide. Furthermore, TEPA will facilitate collaboration and provide access to world-class technologies in precision engineering, health sciences, renewable energy, innovation, and research and development.

Tariff Lines for Exports

EFTA is offering a tariff concession on a significant proportion of their product lines, covering a vast majority of India's exports. Specifically, EFTA's market access offer encompasses 100% of non-agricultural products and a tariff concession on Processed Agricultural Products (PAP). The proposal entails a 92.2% tariff reduction on EFTA's products, translating to a near-total reduction of tariffs on India's exports.

India is extending tariff reduction offers, covering 82.7% of its tariff lines, which represents 95.3% of the EFTA's exports. It will enable domestic consumers to access high-quality Swiss commodities at more competitive prices. Notably, this encompasses luxury items such as watches, chocolates, biscuits, and clocks. Additionally, the agreement will provide tariff concessions on imported Swiss products, including but not limited to seafood, Mediterranean fruits, coffee, oils, sweets, processed foods, and wine, making them more affordable to Indian buyers.

However, it is important to note that the tariffs on gold, representing more than 80% of India's imports, remain unaffected. To extend these offers, the Indian government has taken into consideration the sensitivity of certain sectors, such as pharmaceuticals, medical devices, and processed foods. An exclusion list has been created to exclude sensitive agricultural products, such as dairy, soya, and coal, from the tariff reduction offer. It is essential to note that this exclusion list has been created to maintain the integrity of the Indian market and ensure that sensitive sectors are protected.

Sub-Sectors

India has offered 105 subsectors to the EFTA and successfully procured commitments in 128 subsectors from Switzerland, 114 from Norway, 107 from Liechtenstein, and 110 from Iceland. The commitments secured by India from these nations are expected to create new opportunities for Indian businesses and enhance the competitiveness of its exports.

Service Exports

TEPA proposes invigorate exports, particularly in sectors of key strengths and interests, such as IT services, business services, personal, cultural, sporting, and recreational services, other education services, audio-visual services, etc. Once ratified, this agreement would facilitate exports in these sectors and enable the countries to capitalise on the opportunities presented by their expertise in these areas.

Services offers from EFTA include better access through digital delivery of Services (Mode 1), commercial presence (Mode 3) and improved commitments and certainty for entry and temporary stay of key personnel (Mode 4).

EFTA will offer enhanced access to services through digital delivery (Mode 1), commercial presence (Mode 3), and streamlined procedures for entry and temporary stay of essential personnel (Mode 4). The simplified entry and stay procedures for key personnel will ensure that businesses can smoothly and promptly deploy their talent to new markets.

TEPA has incorporated provisions for Mutual Recognition Agreements (MRAs) in Professional Services, such as nursing, chartered accountancy, architecture, and others. MRAs, under the purview of the TEPA, facilitate the recognition of the qualifications and expertise of professionals in the respective fields of their operation. This recognition enables the professionals to work seamlessly across participating countries, thereby promoting cross-border trade and enhancing economic cooperation.

Intellectual Property Rights

TEPA includes commitments related to Intellectual Property Rights (IPR) that are in alignment with the standards outlined in the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. Notably, India's concerns regarding the evergreening of patents and interests in generic medicines have been fully addressed by the provisions outlined in the agreement.

Sustainable Development

India has demonstrated its unwavering commitment to promoting sustainable development, inclusive growth, social development, and environmental protection. In recent years, India has taken significant strides to ensure that its policies and practices align with the principles of sustainable development, which seeks to meet the needs of the present without compromising the ability of future generations to meet their own needs. Inclusive growth, which prioritises the equitable distribution of resources and opportunities, is a key component of India's current development agenda. The country's commitment towards environmental protection and safeguarding natural resources and ecosystems for the benefit of current and future generations is also evident in the propulsion of more green technology innovations and green energy startups.

Advancement of Trade

The agreement seeks to advance transparency, efficacy, simplification, harmonisation, and consistency of trade procedures. The objective is to foster a systematic approach to international trade operations that offers clarity and predictability to stakeholders.

TEPA will facilitate access to Indian exporters for specialised inputs and create an encouraging trade and investment environment. By doing so, TEPA is expected to boost exports of Indian-made goods and provide opportunities for the services sector to access new markets. This provision will serve towards achieving India's vision of becoming self-reliant and enhancing its global competitiveness.

TEPA presents a promising avenue for Indian businesses looking to integrate into the European Union markets. Notably, Switzerland, a non-EU member, exports over 40% of its global services to the EU, highlighting the potential market opportunities that can be leveraged by Indian companies. With Switzerland serving as a gateway to the EU, businesses can utilise it as a strategic base to extend their market reach and further their internationalisation efforts.

Boost to Manufacturing

TEPA is set to propel the 'Make in India' and Atmanirbhar Bharat initiatives by bolstering domestic manufacturing in various sectors, including Infrastructure, Manufacturing, Pharmaceuticals, Banking and Financial Services, to name a few. TEPA aims to create an enabling environment that fosters the growth of the Indian economy by promoting the production and consumption of domestic products. By providing an impetus to these sectors, TEPA is poised to play a pivotal role in driving the growth and development of India's economy while simultaneously strengthening its position in the global market.

Remarks

Before the India-EFTA TEPA can take effect, it must be ratified by both India and the EFTA nations. Switzerland has already announced its plans to ratify the agreement by the next year. If successfully implemented, the India-EFTA TEPA could serve as a model for other trade agreements.

This achievement also reinforces India's reputation as a champion of free trade, intellectual property rights, global investment, and competition. It could stimulate additional foreign investment and help establish the country as a key player in the international trade landscape.