13 Mar India signed FTA with EFTA
This article covers ‘Daily Current Affairs’ and the topic details of ”India signed FTA with EFTA”. This topic is relevant in the “International Relations” section of the UPSC CSE exam.
Why in the News?
India and the European Free Trade Association (EFTA) have signed a Trade and Economic Partnership Agreement (TEPA). India is currently working on a TEPA with the EFTA countries of Switzerland, Iceland, Norway, and Liechtenstein.
European Free Trade Association (EFTA): A Gateway to European Markets
The European Free Trade Association (EFTA) is a four-member intergovernmental organisation established in 1960 to promote economic integration among Iceland, Liechtenstein, Norway, and Switzerland. These nations operate alongside the European Union (EU), participating in the Single Market and Schengen Area but remaining outside the customs union.
EFTA’s primary functions include:
- Maintaining and developing the EFTA Convention, governing economic relations between member states.
- Overseeing the European Economic Area (EEA) Agreement, creating a single market with three EFTA members (Iceland, Liechtenstein, and Norway) and the EU.
- Expanding EFTA’s network of free trade agreements globally.
India’s Trade Pact with EFTA
India’s historic Trade and Economic Partnership Agreement (TEPA) with EFTA marks a significant step towards boosting trade and investment. Here’s a breakdown of the agreement’s key features and potential impacts:
TEPA Highlights:
- Investment Boost: A first-of-its-kind commitment for EFTA to invest $100 billion in India over 15 years, potentially creating 1 million jobs. (Note: This excludes foreign portfolio investments)
- Market Access: EFTA offers duty-free access for approximately 92.2% of its tariff lines, which covers 99.6% of India’s exports. India offers similar access for 82.7% of its tariff lines, accounting for 95.3% of EFTA’s exports (with limitations on sensitive goods like gold and agricultural products).
- Service Sector Expansion: Improved access for Indian service providers through digital delivery, commercial presence, and streamlined processes for temporary stays of key personnel. TEPA also paves the way for Mutual Recognition Agreements in specific professions, allowing Indian professionals to work more easily in EFTA countries.
- Strong IPR Framework: The agreement acknowledges India’s robust intellectual property regime while addressing its concerns regarding generic medicines and patent evergreening, striking a balance between innovation and access to affordable medicines.
Significance for India:
- Trade Opportunities: TEPA facilitates access to specialised inputs for Indian manufacturers, like high-tech machinery from Switzerland, and opens doors for the services sector in new markets. This can lead to a wider range of high-quality goods being produced in India and greater opportunities for Indian IT, consulting, and other service providers. Beyond immediate benefits, TEPA can act as a stepping stone for Indian companies to integrate into global value chains. By establishing a strong presence in EFTA markets, Indian firms can become more competitive suppliers on a global scale.
- EU Market Integration: Switzerland’s strong service exports to the EU present an opportunity for Indian companies to use it as a base for expanding into the European market. Indian companies can leverage Switzerland’s expertise and established connections to gain a foothold in the larger EU market. This can be particularly valuable for Indian companies aiming to enter the high-value services sector of the EU.
- Supply Chain Diversification: The agreement helps India reduce dependence on China for imports, potentially making its supply chains more resilient. This can be crucial in the face of geopolitical tensions or trade disruptions. Diversification can also lead to greater bargaining power for India when negotiating trade deals with other countries.
- Atmanirbhar Bharat Boost: TEPA encourages domestic manufacturing across various sectors, aligning with India’s self-reliance initiative. The increased inflow of investments can help upgrade India’s manufacturing capabilities and infrastructure. However, to truly benefit from TEPA in the long term, India will need to focus on technological advancements and innovation to ensure its domestically manufactured goods can compete effectively in the global market.
- Job Creation: The pact has the potential to generate a significant number of direct jobs supported by enhanced vocational and technical training. This can improve employability and contribute to India’s economic growth. The additional job opportunities created in the services sector can also empower women and young professionals, fostering inclusive growth.
Challenges to Consider:
- Trade Deficit Concerns: India’s history of trade deficits with major partners, including past FTAs, raises concerns about a potential widening gap. High average tariffs in India compared to the global average contribute to this trend. The investment commitment from EFTA aims to mitigate this by generating economic activity in exchange for market access, but India may also need to review its own tariff structure to improve competitiveness. Additionally, focusing on export promotion initiatives and streamlining trade procedures can help narrow the trade gap.
- Competition in EFTA Markets: Switzerland’s recent elimination of import duties on all industrial goods for all countries poses a challenge for Indian exporters despite any tariff concessions under TEPA. Indian manufacturers will need to focus on innovation, quality, and efficiency to compete effectively in the EFTA markets. EFTA countries are known
- Political instability: The timing of agreement endorsement holds significant importance, given the imminent elections in various nations. This factor may potentially postpone the formulation of future trade pacts and geopolitical prospects.
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Prelims practise questions
Q1. Which countries are part of the European Free Trade Association (EFTA)?
(a) France, Germany, Italy, and Spain
(b) Iceland, Liechtenstein, Norway, and Switzerland
(c) United Kingdom, Ireland, Denmark, and Sweden
(d) Portugal, Greece, Austria, and Belgium
Answer: B
Q2. What is the main purpose of the European Free Trade Association (EFTA)?
(a) To establish a customs union
(b) To promote economic integration among its member nations
(c) To exclude Iceland, Liechtenstein, Norway, and Switzerland from the Single Market
(d) To restrict trade agreements globally
Answer: B
Mains practise question
Q1. Discuss the potential impacts of the Trade and Economic Partnership Agreement (TEPA) on India’s manufacturing capabilities and infrastructure.
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