India and UAE CEPA

Context

• Recently, India and the UAE have signed a Comprehensive Economic Partnership Agreement (CEPA) with the aim of increasing bilateral merchandise trade to $100 billion by 2030.

Why is this trade agreement significant?

• The India-UAE CEPA marks the first trade agreement India has made with a major trading partner in over a decade.
  • The last major FTA India signed was with Japan in 2011.

    

• The agreement is the first in a series of FTAs that India is pursuing to boost exports sharply to 1 trillion dollars each in merchandise and services by 2030.
• India is also pursuing FTAs with Australia, UK, Canada, Israel and the EU.
• Commerce minister also said that India could conclude an FTA with the Gulf Cooperation Council (GCC) group of countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE) by the end of the year.

How will the agreement boost bilateral trade?

• Under the agreement, the UAE is set to eliminate duties on 80 per cent of its tariff lines which account for 90 per cent of India’s exports to the UAE by value.
  • This is particularly important for exports in highly competitive areas such as textiles and garments where India exporters have thus far been facing a competitive disadvantage in import tariffs.
  • Currently Indian textile and leather exports face a 5 per cent duty in the UAE while the products of competitors in Vietnam and Bangladesh have zero duty access.
• The zero duty access for Indian products to the UAE is set to expand over 5-10 years to 97 per cent of UAE tariff lines corresponding to 99 per cent of India’s exports by value.
• Key domestic sectors that are set to benefit include, gems and jewellery, textiles, leather, footwear, sports goods, engineering goods, automobiles and pharmaceuticals.
• The agreement which is expected to come into effect in the first week of May is expected to generate “an additional 10 lakh jobs” in India.

What are some of the goods excluded from the deal?

• India has excluded certain goods from the agreement through a “sensitive list” of products amounting to 10 per cent of tariff lines that are excluded completely from the agreement.
• Dairy, fruits, vegetables, cereals, tea, coffee, sugar, food preparations, tobacco, toys, plastics, scrap of aluminium, and copper are among the products that are excluded from the pact.
• Certain other areas such as those that have seen sharp growth in domestic production or areas where the government is incentivising manufacturing through production-linked incentive schemes have also been excluded from the agreement.

What are key mechanisms to prevent misuse of the trade agreement through re-exports?

• The government has emphasised that this agreement contains strict rules of origin to prevent other countries from using the agreement to reroute their exports through UAE to benefit from lower tariffs.
• Most products require a value addition of 40 per cent in the exporting country under the new agreement to qualify for lower tariffs under the agreement.
• Sources at the commerce ministry said that aluminium and auto components would require value addition of 45 per cent to qualify as having originating in India or UAE under the agreement.
• The agreement also requires that any raw agricultural products and oilseeds be “wholly obtained” or “produced entirely in the exporting country” to ensure that no third party products in these categories can be exported under the agreement.
• The agreement also has safeguard mechanisms that would be triggered if there was a significant surge in imports of a specific product in either country.

What are other key new developments?

• The India-UAE CEPA marked the first time India had included a chapter on digital trade in an FTA indicating India’s willingness to discuss this topic in bilateral agreements.
• India has previously refused to enter discussions on e-commerce at the WTO over concerns that e-commerce rules being proposed at the WTO could harm domestic trade.
• The digital trade chapter of the agreement is applicable on a “best endeavours basis” and is not subject to the dispute settlement mechanism under the agreement.
• The chapter deals with paperless trading, consumer protection, unsolicited commercial electronic messages, personal data protection, cross border flow of information and cooperation on digital products and electronic payments, according to government officials.
• Commerce secretary BVR Subrahmanyam said that there would be regular contact between regulatory bodies on both sides to harmonise regulatory standards on managing digital trade between India and the UAE.

Reference:

https://indianexpress.com/article/explained/india-uae-trade-agreement-explained-7784932/

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