India-EFTA Trade and Economic Partnership Agreement

SYLLABUS:

GS 2 > International relations   >   India and Global Regions

REFERENCE NEWS:

• India recently signed a Trade and Economic Partnership Agreement (TEPA) with the European Free Trade Association (EFTA), comprising four European countries: Iceland, Liechtenstein, Norway, and Switzerland. 
• India and EFTA members held 21 rounds of talks over 16 years to clinch the 100 billion USD free trade deal. 

EUROPEAN FREE TRADE ASSOCIATION (EFTA) The European Free Trade Association (EFTA) is an intergovernmental organization established in 1960 to promote free trade and economic integration among its members, both within Europe and globally. Currently, its members include Iceland, Liechtenstein, Norway, and Switzerland.  Unlike the European Union, EFTA does not function as a customs union. EFTA is not part of the European Union (EU), but it has close economic ties and trade agreements with EU countries.  EFTA members participate in the European Single Market through the European Economic Area (EEA) Agreement, except for Switzerland, which has its own set of bilateral agreements with the EU.

INDIA-EFTA TRADE AND ECONOMIC PARTNERSHIP AGREEMENT:

• INDIA-EFTA Trade and Economic Partnership Agreement is a comprehensive agreement covering trade in goods and services, strong rules of origin clause, intellectual property rights (IPR), investment promotion, government procurement, competition, sustainable development as well as labour issues, human rights, and dispute settlement mechanisms.
• TEPA is a modern and ambitious Trade Agreement. For the first time, India is signing FTA with four developed nations - an important economic bloc in Europe.
• The EFTA-India agreement highlights include:
  • EFTA has committed to promote investments with the aim to increase the stock of foreign direct investments by USD 100 billion in India in the next 15 years, and to facilitate the generation of 1 million direct employment in India, through such investments. 
  • For the first ever time in the history of FTAs, a legal commitment is being made about promoting target-oriented investment and creation of jobs.
  • EFTA offers 92.2% of tariff lines (99.6% of India's exports), covering 100% non-agri products and concessions on Processed Agricultural Products (PAP).
  • India offers 82.7% of its tariff lines, covering 95.3% of EFTA exports, with significant imports being gold. Sensitive sectors are protected.
  • Sector-wise, India has opened 105 sub-sectors to EFTA, receiving commitments in various sub-sectors from EFTA countries.
  • The agreement aims to boost services exports from India in key sectors and offers improved market access and certainty for key personnel.
  • Includes Mutual Recognition Agreements in Professional Services and commitments on Intellectual Property Rights at TRIPS level, addressing India's concerns on generics and patent evergreening.Top of Form

SIGNIFICANCE OF INDIA-EFTA TEPA:

• Investment and Employment Commitments: 
  • Unprecedented in the history of FTAs, the agreement includes binding commitments to promote investments aimed at increasing the stock of foreign direct investments by USD 100 billion in India over the next 15 years and generating 1 million direct jobs in India. This commitment underscores the agreement's focus on long-term economic development and job creation.
• Intellectual Property Rights (IPR) and Sustainable Development: 
  • The TEPA addresses critical aspects of intellectual property rights, aligning with TRIPS (Trade-Related Aspects of Intellectual Property Rights) standards and addressing India's interests in generic medicines. 
  • It also emphasizes India's commitment to sustainable development, inclusive growth, and environmental protection, integrating economic growth with social and ecological objectives.
• Boosting Innovation and Technology Transfer: 
  • The influx of investment and collaboration with EFTA countries, known for their high levels of innovation and technology, could lead to significant technology transfer. This transfer is vital for India's ambitions to become a global manufacturing and technology hub.
• Enhancing Skill Development: 
  • Collaborations envisaged under the TEPA could facilitate knowledge exchange and skill development in India. This is especially relevant in sectors like pharmaceuticals, food processing, and engineering, where EFTA countries have considerable expertise.
• Support for "Make in India" and Self-Reliance: 
  • In line with India's initiatives like "Make in India" and Atmanirbhar Bharat, the agreement is expected to boost domestic manufacturing across various sectors, including infrastructure, pharmaceuticals, food processing, and renewable energy, among others. This aligns with the goals of enhancing domestic capabilities, promoting exports, and reducing import dependencies
• Trade Diversification:
  • The agreement aids India in its efforts to diversify trade and reduce reliance on traditional economic partners, particularly China, by providing alternative sources of investment and market access. This strategic diversification is crucial for India's long-term economic security and growth.
• Capitalizing on Global Economic Shifts: 
  • The timing of the TEPA's signing is particularly significant against the backdrop of a global economic realignment, with investments gradually moving away from China. 
  • By securing the agreement now, India positions itself favourably as a prime destination for global investments, especially when many countries, including EFTA members, are looking to diversify their economic partnerships.
• Precursor to FTAs with the EU and the UK
  • Successfully concluding the TEPA with EFTA showcases India's capability in handling complex trade negotiations, serving as a valuable precedent for future discussions with larger economic blocs like the EU and the UK. 
  • This agreement enhances India's standing as a dependable trading partner among European nations, building the trust needed for negotiating more extensive free trade agreements (FTAs).
• Broader Market Integration: 
  • By providing an avenue for Indian companies to integrate into the European market, particularly through Switzerland's significant service exports to the EU, TEPA opens new doors for Indian businesses to expand their presence in Europe.

CHALLENGES AND CONCERNS:

• Market Access and Competition: Despite the potential benefits, the agreement also presents challenges, particularly in terms of India's access to the EFTA market. For instance, Switzerland's decision to eliminate import duties on all industrial goods could intensify competition for Indian exports, which are predominantly industrial products.
• Trade Deficit and Economic Imbalance: Concerns over India's growing trade deficit with EFTA, particularly due to Switzerland's tariff-free policy on industrial goods which doesn't extend to agriculture, negatively impacting India's exports??.
• Intellectual Property and Data Exclusivity: EFTA's push for stronger IPR protections, including data exclusivity, could delay access to affordable generic medicines in India and globally, impacting public health??????.
• Regulatory Standards and Compliance: EFTA countries are known for their high regulatory standards, particularly in areas such as environmental protection, labor laws, and product quality. Indian businesses, especially small and medium-sized enterprises (SMEs), may face challenges in meeting these stringent requirements, impacting their ability to export effectively to EFTA markets.
• Technological and Innovation Gap: The technological and innovation gap between India and the EFTA countries could be significant, especially in high-tech industries and services. Bridging this gap requires substantial investment in research and development (R&D).
• Cultural and Business Practices: Differences in business practices and cultural nuances can pose challenges for Indian companies seeking to establish themselves in EFTA markets. Understanding and adapting to these differences is crucial for long-term success but requires time and effort.
• Impact on Small Farmers and Local Industries: Imported goods from EFTA countries could impact small farmers and local industries in India.
• Dependency on Foreign Investment: Dependence on foreign investment could create vulnerabilities; balanced technology transfer and capacity building are vital.
• Skewed Benefits Across Sectors: TEPA's benefits might not be evenly distributed, potentially exacerbating economic disparities within India.
• Compliance with International Standards: Compliance with international standards, including intellectual property and labour laws, requires adjustments in India's legal framework.
• Global Economic Uncertainties: Global economic uncertainties could affect TEPA's implementation and benefits.
• Digital Trade and Data Privacy: Digital trade raises issues such as data privacy and cross-border data flows, necessitating a balance between trade promotion and privacy protection.

WAY FORWARD:

• Support for SMEs: Develop targeted programs to assist small and medium-sized enterprises in upgrading their production capabilities, meeting EFTA's regulatory standards, and accessing EFTA markets.
• Standards and Compliance Training: Offer training and resources to businesses to help them comply with EFTA’s regulatory standards, especially in areas like environmental protection, labor laws, and product quality.
• Focused Investment Zones: Establish dedicated zones for EFTA investments in sectors with high employment and growth potential, ensuring technology transfer and local capacity building.
• Balanced IPR Framework: Develop a balanced intellectual property rights framework that protects innovations while ensuring access to affordable medicines and technologies.
• Monitoring Trade Impact: Regularly monitor the trade deficit and its impact on the economy, adjusting policies as necessary to ensure equitable benefits.
• Protecting Local Industries and Agriculture: Implement safeguards and support measures for sensitive sectors, including agriculture, to ensure they are not adversely affected by increased competition.
• Policy Alignment: Align domestic policies with the commitments made in TEPA, especially regarding labor laws, environmental standards, and intellectual property rights.
• Digital Trade Framework: Establish clear rules and frameworks for digital trade that protect data privacy and ensure secure cross-border data flows. Enhance the digital capabilities of businesses to leverage opportunities in digital trade and e-commerce.
• Strategic Economic Diplomacy: Use the success of the TEPA as a platform for engaging in further trade negotiations with other countries and economic blocs, including UK and EU, enhancing India's global trade network.
• Continuous Dialogue and Review Mechanism: Establish a continuous dialogue and review mechanism with EFTA countries to address emerging issues, ensuring the agreement remains responsive to changing economic landscapes.

PRACTICE QUESTION:

Q. “The India-EFTA Trade and Economic Partnership Agreement not only holds immediate economic and strategic benefits for India but also serves as a critical stepping stone towards broader engagement with major economic blocs”. Discuss. (15 marks, 250 words)