GS Paper II & III

News Excerpt: 

India and the European Free Trade Association, comprising Norway, Switzerland, Iceland, and Liechtenstein, signed a free trade agreement on 10 March 2024.

Key Highlights of the Agreement: The agreement, officially called the Trade and Economic Partnership Agreement (TEPA), aims to encourage investments and enhance trade in goods and services between India and the EFTA nations. 

• The agreement consists of 14 chapters covering various aspects such as trade in goods, rules of origin, trade in services, investment promotion, intellectual property rights (IPRs), and more. 
• This is India's fourth such agreement since 2014, with previous agreements signed with Mauritius, the UAE, and Australia. 
• EFTA countries have committed to investing $100 billion in India over the next 15 years, reflecting the potential for economic growth and job creation. 
• Negotiations for the agreement began in 2008, with 13 rounds of talks held until 2013. After a hiatus, negotiations resumed in October 2023 and concluded swiftly. 
• The two-way trade between India and EFTA countries was $18.65 billion in 2022-23, with Switzerland being India's largest trading partner in the EFTA bloc, followed by Norway. 
• India is also separately negotiating a comprehensive free trade agreement with the European Union (EU), a 27-nation bloc, indicating India's commitment to expanding its trade relations globally.

The timing of India signing the trade agreement with the European Free Trade Association (EFTA) is crucial for several reasons:

• Election Year Concerns: Over 64 countries, including India, are heading into elections this year. This could lead to a pause in free trade agreements (FTAs) as political priorities shift during election periods.
• Global Supply Chain Shift: There's a significant shift in global investment away from China, presenting an opportunity for countries like India to attract investment. The signing of the agreement allows India to capitalize on this shift.
• Competition from Other Nations: Vietnam-led Association of Southeast Asian Nations (ASEAN) nations and North American countries like Mexico are also emerging as favorable investment destinations. India needs to act swiftly to compete with these countries for investment.
• Geo-political Opportunity: Delaying integration into global supply chains could result in missed opportunities for India to establish itself as a key player in the global economy.

India pushed for investment commitment in the EFTA deal due to several reasons:

• Trade Deficit Concerns: India runs trade deficits with most of its major trading partners. Past FTAs, especially with ASEAN nations, have widened India's trade gap. India sought investment commitments to balance this trade deficit.
• Tariff Disparities: India's average tariffs are higher compared to developed nations, making it easier for FTA partners to access the Indian market. The investment commitment could help offset some of these disparities.
• Services Sector Potential: India stands to gain in the services sector, which is a significant contributor to its economy. The deal could further boost this sector.
• Beneficiary Sectors: Sectors in India that could benefit from EFTA investment include pharma, chemicals, food processing, and engineering. Investments from EFTA, particularly Norway's sovereign wealth fund, could help India diversify its imports away from China.

Accessing the EFTA market might pose challenges for India:

• Tariff Elimination: Switzerland, India's biggest trade partner in the EFTA, has eliminated import duties on all industrial goods. This could lead to stiffer competition for Indian goods in the Swiss market.
• Agricultural Trade Barriers: EFTA has not shown a willingness to eliminate tariffs on basic agricultural produce, making it challenging for India to export agricultural products to EFTA countries. Complex tariffs, quality standards, and approval requirements further complicate agricultural exports to Switzerland.
• Non-Tariff Barriers: Besides tariffs, non-tariff barriers such as complex regulations, standards, and certification requirements can hinder trade. India needs to engage in dialogue with EFTA countries to streamline regulations and ensure compliance with international standards.
• Competitive Market: EFTA countries have well-developed industries and strong competition. Indian businesses may face challenges in penetrating these markets. To overcome this, India could focus on niche markets where it has a competitive advantage, such as technology services, pharmaceuticals, and specialized manufacturing.
• Intellectual Property Rights (IPR) Protection: One of the key issues in IPR was data exclusivity which could impact the generic medicine sector. Hence, India needs to strengthen its legal framework and enforcement mechanisms to provide adequate protection to intellectual property rights holders.

Conclusion:

The agreement signals a deeper economic partnership between India and the EFTA nations, fostering dialogue, and cooperation, and is expected to open up new opportunities for trade and investment, benefiting both India and the EFTA countries. While accessing the EFTA market may pose challenges for India, proactive measures and sustained efforts can help overcome these obstacles and maximize the benefits of the trade agreement for both sides. Continued engagement, capacity building, and strategic planning are essential for realizing the full potential of India-EFTA trade relations.