India and UAE relations

2022 FEB 21

Mains   > International relations   >   India and Global Powers   >   India & West Asia

WHY IN NEWS?

  • On February 18, 2022, India and the United Arab Emirates (UAE) inked a new Free Trade Agreement, named Comprehensive Economic Partnership Agreement (CEPA).

BACKGROUND

  • India and United Arab Emirates (UAE) enjoy strong bonds of friendship which are founded on millennia-old cultural, religious and economic intercourse between the two regions.
  • People-to-people contacts and barter trade between the two regions have existed for centuries.
  • The relationship flourished after the accession of H.H. Sheikh Zayed Bin Sultan Al Nahyan as the Ruler of Abu Dhabi in 1966 and subsequently with the creation of the UAE Federation in 1971.
  • India and the UAE established diplomatic relations in 1972.
  • The greater push has been achieved in bilateral relations when the visit of India’s Prime Minister to the UAE in 2015 marked the beginning of a new strategic partnership between the two countries.
  • Further, during the visit of the Crown Prince of Abu Dhabi to India in 2017 as the chief guest at India’s Republic Day celebrations, it was agreed that bilateral relations were to be upgraded to a comprehensive strategic partnership.
  • This gave momentum to launching negotiations for an India-UAE Comprehensive Economic Partnership Agreement (CEPA).

WHAT IS THE INDIA-UAE CEPA ABOUT?

  • The Comprehensive Economic Partnership Agreement is a bilateral trade pact that will cover over a period of time 90% of India’s exports. This will include leather, processed agriculture and dairy products, handicrafts, gems and jewellery, pharmaceuticals etc.
  • Apart from the goods sector, it will also include the services sector.
  • The deal has strong anti-dumping measures integrated into it which will prevent any country from dumping its products into the Indian market by using the route of the UAE.
  • The pact has very strong rules of origin clauses that will disallow any country to export goods to India taking advantage of relaxed tariff on the Indian side.
  • India wants 40% value addition into a product from a third country before it could be exported to India through UAE.
  • The agreement also speaks about expediting work on a special investment zone for UAE companies and joint ventures, and a dedicated India Mart in the Jebel Ali free zone.

BENEFITS EXPECTED FROM CEPA:

  • Improves bilateral trade:
    • The trade pact aims to take bilateral trade to over USD1billion within five years, including in services.
  • Stimulate export-oriented industries in India
    • The FTA covers 80 per cent of Indian exports to the UAE and is expected to stimulate export-oriented industries in India, especially in the MSME sector, because of a zero-tariff welcome by the UAE.
  • Higher remittances inflow:
    • Officials are also hoping that Indian investments in the UAE, spurred by the FTA, will see more remittances flowing into the country.
  • May helps in reviving FTA negotiation with GCC:
    • The government hopes that the pact with the UAE will revive a long-shelved FTA with the Gulf Co-operation Council, and pave the way to markets in Africa, especially for India’s pharmaceuticals sector.
    • With the UAE an important transit point for goods and people, this is not an unreasonable expectation, provided Indian industry, especially the ailing MSME sector, can live up to the potential offered by the FTA, and exports match imports.
  • Aligned with India’s new approach towards FTA:
    • India’s approach towards Free Trade Agreements (FTAs) is changing and now focusing more on gaining meaningful market access and facilitating Indian industry’s integration into global value chains.

WHY UAE IS IMPORTANT TO INDIA?

  • Remittances:
    • The India-UAE economic relation at present is shaped by the remittances.
    • The country hosts at least 3 million Indians who work in diverse sectors of the economy of the Emirates and provides it with vital manpower support at all levels.
    • The remittances from the UAE in the first half of 2020 accounted for USD 21 billion.
    • According to a study, 82% of India’s total remittances originated from seven countries that included Gulf countries like the UAE, Saudi Arabia, Oman and Kuwait.
    • The remittances are expected to rise with full economic recovery of the UAE’s post-pandemic economy.
  • Strategic considerations:
    • The UAE, due to its strategic location, has emerged as an important economic center in the world and is also a major re-export hub for India.
    • Further good relations with the UAE are imperative to counter China’s influence in the Middle-east region.
  • Security of the region:
    • The Middle-east region is still witnessing a lot of conflicts in Syria, Iraq etc.
    • Good relations with UAE are imperative to give India a core place in discussion surrounding the Middle-east region.
    • Further UAE can support India in strengthening the security of the Indian ocean region especially along the western coast of Somalia that is prone to piracy.
    • India-UAE have been collaborating closely to counter terrorism as well.
  • Gateway to Africa:
    • Engagement with the UAE will pave the way for India to leverage UAE’s easy access to the African market and its various trade partners.
    • This can help India to become a part of the supply chain especially in handlooms, handicrafts, textiles and pharma.
  • Entry into regional groupings:
    • UAE commands a significant respect in regional groupings like OIC (Organization of Islamic Cooperation) and GCC.
    • An improvement in relation will open India’s door for an OIC membership.
  • India’s Soft Power:
    • Good relations with UAE are a sine qua non for enhancing India’s Soft power in the Middle-east region.
    • A recent progression of it was witnessed in 2021 when both Abu Dhabi and Dubai celebrated Diwali.
  • Post-pandemic recovery:
    • It is understood that UAE as part of its post pandemic recovery plans is planning to revitalise its trade links with the region from the Mediterranean coast to Turkey on one hand and India and South Asia on the other.
  • Diversification plan of the Emirates:
    • In recent years, the UAE, through its ‘Vision 2021’, has sought to diversify its economy and reduce its dependency on oil.
    • This provides an opportunity for India to engage with it in new areas of renewable energy, start-ups, fintech, etc.

 

COOPERATION:

  • Economic:
    • Bilateral trade:
      • Relations between India and the UAE have improved significantly over the last few years.
      • The UAE is India’s third-largest trading partner and second-largest export destination, oil being the main import from the Gulf country.
      • India's major export items to UAE include petroleum products; precious metals; stones, gems & jewellery etc.
      • Oil Trade: UAE was the fifth largest import source of crude oil for India.
      • The two countries signed a strategic partnership agreement in 2017. The CEPA may serve to deepen the partnership.
    • Investment
      • The UAE’s investment in India is estimated to be around USD11.67 billion, which makes it the ninth biggest investor in India.
      • Many Indian companies have set up manufacturing units either as joint ventures or in Special Economic Zones for cement, building materials, textiles, engineering products, consumer electronics, etc.
  • Energy Cooperation:
    • The UAE is one of India’s key energy providers and remains committed to meeting India’s growing energy demand.
    • India imported USD 10.9 billion worth of crude oil from the UAE in 2019-20.
    • The UAE is the first international partner to invest by way of crude oil in India’s Strategic Petroleum Reserves Program.
    • The countries are also collaborating in the renewable energy sector as seen by mutual participation in the International Solar alliance.
  • Western QUAD:
    • India, Israel, the United Arab Emirates and the United States have decided to launch a new quadrilateral economic forum, informally named Western Quad/Middle East Quad
    • It builds on ongoing cooperation between the U.S., Israel and the UAE after the Abraham Accords and India.
    • The western quad is marked by the diplomatic breakthroughs between Israel and the United Arab Emirates
    • USA and the UAE are among the biggest trading partners of India, and Israel is among the top technology support providers for India. All four are connected by currents of security and trade.
  • Bilateral Agreements:
    • India and the UAE have signed a number of Agreements and MoUs from time-to-time in different sectors providing an institutional framework for cooperation in those sectors.
    • Few examples are:
      • Cultural Cooperation Agreement (1975)
      • Civil Aviation Agreement (1989)
      • Double Taxation Avoidance Agreement (1992)
      • Extradition Treaty
  • Institutional Structure for Dialogue:
    • Annual Foreign Office Consultations are held at the Secretary level.
    • India-UAE Joint Commission Meeting (JCM) for Economic and Technical Cooperation deals with issues related to trade and commerce.
  • Pandemic Management:
    • Both sides had agreed on an Air Bubble Arrangement in 2020 during the pandemic which has enabled the movement of people between two countries despite the challenges posed by COVID-19.
    • The UAE was among the first countries to receive India’s indigenous Covaxin in February 2021.
  • Defence Cooperation:
    • With the signing of MoU on Defence Cooperation in 2003 and setting up of Joint Defence Cooperation Committee (JDCC) regular exchange of dialogue is taking place between the two countries.
  • Indian Diaspora:
    • UAE hosts a large Indian community which numbers close to 3.5 million.
    • The nation has been a consistent provider of jobs to Indian people.
  • Sports:
    • The collaboration among the two countries in the domain of sports is also rising.
    • This is testified by the occurrence of IPL 2020 and the last T20 world cup in UAE.
  • India-UAE Joint Vision Statement 2022:
    • On defence and security
      • Both countries agreed to enhance maritime cooperation contributing to maintenance of peace and security in the region.
      • They also reaffirmed joint commitment to fight against extremism and terrorism, including cross-border terrorism.
    • On energy partnership
      • Both countries agreed to promote collaboration opportunities to support India’s energy requirements, including new energies.
      • They also expressed mutual support in energy transition and focused work on a low-carbon future.
    • On climate action and renewables
      • Both countries agreed to support each other’s clean energy missions and establish a joint Hydrogen Task Force to help scale up technologies, with special focus on production of Green Hydrogen.
    • On emerging technologies
      • They agreed to expand cooperation on critical technologies and mutually promote e-businesses and e-payment solutions and promote start-ups from both countries.
    • On education cooperation
      • Agreed to establish an Indian Institute of Technology in the UAE.
    • On health cooperation
      • Collaborate in research, production and development of reliable supply chains for vaccines and enhance investments by UAE entities in the health infrastructure in India.
    • On food security
      • Decided to expand cooperation through enhanced bilateral food and agriculture trade and, promote and strengthen the infrastructure and dedicated logistic services connecting farms to ports to final destinations in the UAE.
    • On skills cooperation
      • Agreed to enhance cooperation in skill development so as to align with the market needs.

 

ISSUES:

  • Non-Tariff Barriers (NTBs) to trade:
    • Non-Tariff Measures (NTMs) have mostly been covered by Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade (TBT).
    • The UAE has 451 SPS notifications and  534 TBT notifications. The SPS notifications are mainly related to live poultry, meat, and processed food.
    • In addition, the TBT notifications are mainly related to fish, food additives, meat, rubber, electrical machinery, etc. These measures hamper India’s exports to UAE.
  • Arab- Iran Conflict:
    • The differences between Iran and the Arab world hinder India’s engagement in the Middle-east region.
    • Balancing the relationship sometimes results in reluctance of some strategic agreements.
  • Kafala System:
    • The inhuman conditions imposed by the Kafala system on immigrants sometimes create differences between the two countries.
  • Pandemic shock
    • Remittances from UAE marginally affected in 2020 when large number of Indian workers returned home because of pandemic related economic distress.

WAY FORWARD:

  • Earlier completion of agreed projects:
    • Both countries should focus on completing their MOUs (memorandum of understanding) in order to take their relationship to the next level.
  • Establish more strategic dialogues
    • Both countries should establish more strategic dialogues between them like the 2+2 dialogue. Currently India has a 2+2 dialogue with U.S, Russia etc. but not with UAE.
  • Reducing non-tariff barriers:
    • India-UAE must try to bring more transparency and predictability in the use of NTBs so that their compliance becomes less cumbersome.
    • There should be regular information sharing on labeling, licensing, permit requirements, import monitoring and surveillance requirements.
  • Focus on migrant population:
    • India should actively engage with the UAE to reform the Kafala system. A reference of Qatar can be given who has promised to remove the inhuman conditions of the system.
    • India must also make joint efforts with UAE to extend social security benefits to Indian migrant population.
  • Strengthen defence cooperation:
    • Potential areas of bilateral cooperation in the defence field are:
      • Production and development of defence equipment;
      • Joint exercises of armed forces, particularly naval exercises
      • Sharing of information on strategy and doctrines
      • Technical cooperation in respect of Intermediate Jet Trainer etc.

CONCLUSION:

  • Both nations should come together to further engage with each other, bilaterally as well as on multi-lateral fora, based on mutual trust and confidence.
  • Their future discourse should be guided by the rules of international law and focus on making the world a better place to live keeping in mind their respective national interest.

PRACTICE QUESTION:

Q. “India’s relation with UAE is longer cantered around crude oil trade”. Do you agree with this statement?