India has signed free trade agreements with the United Arab Emirates (UAE) and Australia on the trot, breaking a dry spell for such pacts that lasted years, and is working to conclude similar arrangements with the UK, the European Union (EU), Israel and Canada.
India entered the post-Covid-19 era with two major free trade agreements (FTAs). On February 18, it signed the comprehensive deal with the UAE. Less than two months later, it inked a comprehensive but interim trade deal – the Economic Cooperation and Trade Agreement (ECTA) or phonetically “ekta”, which in Hindi means unity – with Australia on April 2.
The negotiation process for the comprehensive economic partnership agreement (CEPA) with the UAE, signed by commerce minister Piyush Goyal and UAE economy minister Abdulla bin Touq Al Marri, was one of the shortest in recent memory. The two sides began work on the pact last September. Similarly, negotiations for the India-Australia ECTA were formally re-launched barely six months ago, on September 30, 2021.
Two major global economies now keen to forge long-term trade partnerships with India are the UK and the EU. A bilateral free trade agreement will be at the top of British Prime Minister Boris Johnson’s agenda for his two-day visit to India from April 21. The UK is working overtime to forge new trade arrangements after its exit from the EU, and the deal with India is expected to boost total trade by £28 billion annually by 2035.
India will host the third round of discussions on the FTA with the UK in a hybrid mode from April 25. At the second round of talks in March, the two sides shared the draft treaty text covering 26 chapters or policy areas. The two sides have completed discussions on four chapters and reportedly made significant progress in the remaining 22 chapters. The British side has signalled it will focus on treaty architecture and seeking market access commitments in the third round of talks.
India and the UK agreed to double trade in goods and services to about $100 billion by 2030 as Goyal and UK trade secretary Anne-Marie Trevelyan launched formal negotiations for an FTA on January 13. Total two-way trade is currently around $50 billion, including $35 billion of services and $15 billion of goods.
India and the UK expect expeditious finalisation of tariffs and terms on matters where interests of the two sides converge, but there are some sensitive issues for both, which may be handled after taking the views of all stakeholders. For example, the visa issue for Britain and agriculture, dairy and duty on liquor, particularly Scotch.
India and EU have decided to conceptualise basic frameworks for negotiating a comprehensive deal to raise two-way trade to more than $220 billion in five years. The issue will figure prominently in European Commission President Ursula von der Leyen’s discussions with Indian interlocutors when she visits New Delhi in the last week of April.
Key discussions with the UK and the EU were also held when a team led by commerce secretary BVR Subrahmanyam visited London and Brussels this month. While India and the EU earlier eyed the possibility of stitching up an investment treaty before moving towards more contentious trade issues, the European side is now keen to have parallel discussions on investment, trade in goods and services and geographical indications so that a comprehensive package deal can be concluded, people familiar with the matter said.
The EU-related developments are significant because trade negotiations had stopped in 2013 after 16 rounds of talks. Among the contentious issues were movement of Indian professionals and high tariffs on European farm produce. The Netherlands, Germany and France are among EU members pushing for the speedy conclusion of talks, the people cited above said.
“There was a narrative after India withdrew from the Regional Comprehensive Economic Partnership (RCEP) in 2019 that the government was against FTAs. But recent developments have shown that India is willing to sign FTAs when its interests and concerns are addressed,” said an official who declined to be named.
A second government official, asking not to be named, said: “The four deals – two already concluded [the UAE and Australia] and two in the pipeline [EU and UK] have the potential to surpass trade volume of over $500 billion in five years.”
Goyal has said India is also working on FTAs with Canada, Israel and the six-member Gulf Cooperation Council (GCC), which brings together the UAE, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait. Though India and Israel had announced they intend to conclude talks on an FTA by June 2022, the people cited above said the negotiations are expected to take some more time. Israeli Prime Minister Naftali Bennett’s planned visit to New Delhi this month, which was put off after he tested positive for Covid-19, would have given a push to the issue, the people said.
The people added that a trade pact with the US was not on the cards in the immediate future despite some recent engagements on trade issues.
India could successfully negotiate FTAs with the UAE and Australia because of four broad factors – Prime Minister Narendra Modi’s excellent relations with top leaders of these two countries, wider consultation with stakeholders (trade and industry), respecting sensitivities of partners, and complementarity instead of competition.
“India earned immense goodwill during the Covid period when Prime Minister Modi distributed vaccines to other countries. In the post-Covid era, India has emerged as a reliable and trusted partner for the developing and developed world,” the official said. The two bilateral deals are strategically fit for all partners. India, which is focused on “Make in India” and “Make for the World”, will source valuable inputs in terms of energy and minerals from the UAE and Australia, and in turn will assure them of an efficient and reliable supply chain for goods and services. Goyal has said the trade pacts with the UAE and Australia have been “very well received” and didn’t elicit “a single negative response” from any sector thanks to the wider consultations.
The CEPA with the UAE was signed during a virtual summit between Modi and Abu Dhabi Crown Prince Sheikh Mohammed Bin Zayed Al-Nahyan on February 18 and is set to enter into force on May 1.
The agreement envisages a comprehensive economic partnership covering trade in goods and services, rules of origin, technical barriers to trade (TBT), sanitary and phytosanitary (SPS) measures, dispute settlement, movement of natural persons, telecom, customs procedures, pharmaceutical products, government procurement, IPR, investment and digital trade.
The CEPA covers almost all tariff lines dealt in by India (11,908 tariff lines) and the UAE (7,581 tariff lines). India will benefit from preferential market access provided by the UAE on over 97% of its tariff lines, which account for 99% of Indian exports to the UAE in value terms, especially for labour-intensive sectors such as gems and jewellery, textiles, leather, footwear, sports goods, plastics, agricultural and engineering products, medical devices, and automobiles. India will offer preferential access to the UAE on over 90% of its tariff lines.
On services, India offered market access to the UAE in around 100 sub-sectors, while Indian service providers will have access to around 111 sub-sectors from the 11 broad service sectors such as business, communications, construction and related engineering services, distribution, education, environment, finance, health, social services, tourism and travel, culture and sports and transport. Both sides agreed on a separate annexure on pharmaceuticals to facilitate access of Indian pharmaceutical products, with the UAE agreeing on automatic registration and marketing authorisation in 90 days for Indian medicines given regulatory approval in the US, the EU, the UK and Japan.
The UAE’s importance is evident from the fact that bilateral trade has gone from $180 million per annum in the 1970s to $60 billion in FY 2019-20, making it India’s third largest trading partner. India’s exports to the UAE were worth $29 billion in 2019-20, while imports were valued at around $30 billion, including crude oil worth about $11 billion. The UAE is the eight largest investor in India, with estimated investments of $18 billion.
The India-Australia Economic Cooperation and Trade Agreement (IndAus ECTA) was signed at a virtual summit on April 2. Modi summed up the significance of the deal in his address on that day: “Our economies have great potential to meet each other’s needs…This agreement will make it easier for us to exchange students, professionals, and tourists, further strengthening these ties.” ECTA is India’s first trade agreement with a developed country after more than a decade. It covers areas such as trade in goods and services, rules of origin, TBT, SPS measures, dispute settlement, movement of natural persons, customs procedures and pharmaceutical products.
The deal is also significant because India and Australia are members of Quad, which was revived to counter Chinese aggressive actions. Trade ministers of the two countries said a shared partnership under the Quad, along with the US and Japan, helped them strike a trade deal that will reduce dependence on China. Australian trade minister Dan Tehan attributed the growing relationship between India and Australia to the Quad’s values. “Keeping the Indo-Pacific free and open as a place where liberal democracies can flourish is just so, so important,” he said. Friction between Canberra and Beijing has resulted in a series of official and unofficial Chinese trade sanctions on Australian exports and India has been looking to boost exports, including by offering an alternative to China at a time when the Ukraine war has caused an East-West division.
ECTA covers almost all the tariff lines dealt in by India and Australia. India will benefit from preferential market access on 100% of its tariff lines. India also offered preferential access to Australia on over 70% of its tariff lines, including raw materials and intermediaries such as coal, mineral ores and wine.
Australia is India’s 17th largest trading partner and India is Australia’s 9th largest trading partner. India-Australia trade for merchandise and services was valued at $27.5 billion in 2021. India’s merchandise exports to Australia grew 135% between 2019 and 2021.