The Hindu Editorial Analysis- 14th March 2024 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

A Fresh Stance

Why in News?

On Sunday, India signed a Trade and Economic Partnership Agreement (TEPA) with a bloc of four European countries — Iceland, Liechtenstein, Norway and Switzerland, formally known as the European Free Trade Association (EFTA). 

European Free Trade Association (EFTA)

• The European Free Trade Association (EFTA) is an intergovernmental organization consisting of Iceland, Liechtenstein, Norway, and Switzerland.
• Established in 1960 through the Stockholm Convention, EFTA's primary goal is to promote free trade and enhance economic integration among its member countries.
• EFTA operates alongside the European Union (EU), with all four member states actively participating in the European Single Market and being part of the Schengen Area.
• However, unlike the EU, EFTA member states are not part of the European Union Customs Union.

• Key Responsibilities of EFTA:
  • Maintaining and evolving the EFTA Convention, which governs economic interactions among the four EFTA states.
  • Overseeing the Agreement on the European Economic Area (EEA Agreement), which establishes a single internal market involving the EU and three EFTA states: Iceland, Liechtenstein, and Norway.
  • Expanding EFTA's global network of free trade agreements.
• Trade Relations between India and EFTA countries:
  • EFTA facilitates trade relationships between India and its member countries through various agreements and collaborations.
  • These partnerships aim to boost economic ties, enhance market access, and promote mutual benefits for all parties involved.
  • By fostering cooperation in trade and commerce, both India and EFTA nations can leverage each other's strengths and opportunities for sustainable growth.

Trade and Economic Partnership Agreement (TEPA)

• India recently entered into a significant trade agreement with the four-nation EFTA, known as the Trade and Economic Partnership Agreement (TEPA).
• The TEPA consists of 14 chapters, focusing primarily on aspects such as market access for goods, rules of origin, trade facilitation, and trade remedies.
• This marks India's fourth agreement of this nature since 2014, following previous agreements with countries like Mauritius, the UAE, and Australia.
• Notably, this agreement includes a groundbreaking commitment for the first time in the history of Free Trade Agreements (FTAs): a binding commitment of $100 billion in investments and the creation of 1 million direct jobs over the next 15 years.

Key highlights of the TEPA

• Legal Commitment for Promoting Investment and Job Creation:
  • EFTA has made a commitment to promote investments in India with specific goals:
  • Increasing Foreign Direct Investment (FDI) by USD 100 billion within the next 15 years.
  • Facilitating the creation of 1 million direct job opportunities in India through these investments.
  • Note: These investments do not include Foreign Portfolio Investment (FPI).
• Coverage:
  • EFTA is providing access to 92.2% of its tariff lines, encompassing 99.6% of India's exports.
  • EFTA's market access offer includes 100% coverage of non-agricultural products and tariff concessions on Processed Agricultural Products (PAP).
  • India, on the other hand, is offering access to 82.7% of its tariff lines, covering 95.3% of EFTA exports, with a significant portion related to Gold imports.
  • The duty on Gold remains unaffected by these agreements.
  • Considerations have been made regarding the Production-Linked Incentive (PLI) in sectors like pharmaceuticals, medical devices, and processed food during negotiations.
  • Excluded sectors include dairy, soya, coal, and other sensitive agricultural products.
• Sub-sectors Included:
  • India has offered access to 105 sub-sectors to EFTA and has received commitments in 128 sub-sectors from Switzerland, 114 from Norway, 107 from Liechtenstein, and 110 from Iceland.
• Inclusion of Services:
  • EFTA's service offerings include improved access through digital service delivery (Mode 1), commercial presence (Mode 3), and enhanced commitments for the entry and temporary stay of essential personnel (Mode 4).
  • The Trade and Economic Partnership Agreement (TEPA) includes provisions for Mutual Recognition Agreements in Professional Services such as nursing, chartered accountancy, and architecture.
• Robust Intellectual Property Rights (IPR) Regime:
  • The Intellectual Property Rights (IPR) chapter with Switzerland, known for its high standards in IPR, demonstrates India's strong IPR regime.
  • India's concerns regarding generic medicines and issues related to patent evergreening have been effectively addressed in the agreements.

Economic Partnership Agreement between EFTA and India

• EFTA offers access to 92.2% of its tariff lines, encompassing 99.6% of India's exports.
• The agreement includes 100% coverage for non-agricultural products and tariff benefits for Processed Agricultural Products.
• India reciprocates by granting access to 82.7% of its tariff lines, affecting 95.3% of EFTA exports, with a significant portion being gold imports.
• Gold import duties remain unchanged in the agreement.
• Consideration for sensitive sectors like pharmaceuticals, medical devices, and processed foods is reflected in the offers made.
• Exclusion lists safeguard sectors such as dairy, soy, coal, and other sensitive agricultural products.

Sub-sector Details

• India proposes 105 sub-sectors to EFTA, receiving commitments in 128 sub-sectors from Switzerland, 114 from Norway, 107 from Liechtenstein, and 110 from Iceland.

Inclusion of Services

• EFTA provides enhanced service access through digital delivery, commercial presence, and facilitation for key personnel's entry and temporary stay.
• The agreement also incorporates provisions for Mutual Recognition Agreements in Professional Services like nursing, chartered accountancy, and architecture.

Enhanced Access to Services

• EFTA provides enhanced access through digital delivery of services (Mode 1), commercial presence (Mode 3), and improved commitments for the entry and temporary stay of key personnel (Mode 4).
• TEPA includes provisions for Mutual Recognition Agreements in Professional Services such as nursing, chartered accountants, and architects.

Robust Intellectual Property Rights (IPR) Regime

• The IPR chapter with Switzerland highlights India's strong IPR regime, aligning with high standards in intellectual property protection.
• India's concerns regarding generic medicines and issues related to patent evergreening have been effectively addressed within the agreement.

In the context of trade agreements, the European Free Trade Association (EFTA) and the Trade and Economic Partnership Agreement (TEPA) offer significant benefits in terms of service access and intellectual property rights. 

Here's a breakdown of the key points:

• Enhanced Access to Services:- EFTA facilitates improved access to services through digital means, commercial presence, and specific commitments for key personnel mobility.- TEPA specifically addresses Mutual Recognition Agreements in various professional sectors like nursing, chartered accountancy, and architecture.
• Robust Intellectual Property Rights (IPR) Regime:- The IPR provisions within the agreement with Switzerland showcase India's robust IPR framework, meeting high international standards.- The concerns related to generic medicines and the practice of patent evergreening have been thoroughly considered and resolved in the agreements.These summaries aim to simplify complex trade-related information into easily digestible points, emphasizing the core benefits and provisions included in these agreements.
• Trade Opportunities:
  • Enhances the capabilities of Indian exporters to access specialized inputs, fostering a favorable trade and investment environment.
  • Stimulates the export of Indian goods and opens up avenues for the services sector to tap into more markets.
• Integration into EU Markets:
  • Switzerland serves as a gateway for Indian companies to expand their market presence into the European Union.
  • Over 40% of Switzerland's global services exports are directed towards the EU, presenting a significant opportunity for Indian businesses.
• Diversification of Supply Chain:
  • Facilitates the reduction of India's dependence on imports from China by diversifying the supply chain.
• Boost to 'Make in India' and 'Atmanirbhar Bharat':
  • Encourages domestic manufacturing across various sectors such as Infrastructure, Manufacturing, Pharmaceuticals, and more.
  • Promotes self-reliance by focusing on key areas like Transport, Banking, and Insurance.
  • Generates a substantial number of direct job opportunities while enhancing vocational and technical training facilities.

Encouraging Domestic Manufacturing

• Encouraging domestic manufacturing is vital across various sectors such as Infrastructure and Connectivity, Manufacturing, Machinery, Pharmaceuticals, Chemicals, Food Processing, Transport and Logistics, Banking and Financial Services, and Insurance.

Creation of Job Opportunities

• This initiative leads to the creation of a large number of direct jobs, providing employment opportunities for individuals.
• It includes the establishment of better facilities for vocational and technical training to enhance skill development among the workforce.

India's Trade Deficit 

• India consistently experiences a trade deficit with most major trade partners, barring the US. This trend extends to Free Trade Agreements (FTAs) signed by India, notably with ASEAN nations.
• The primary reason behind this imbalance is India's high average tariffs, which stand at approximately 18%, ranking among the highest globally.
• Impacts of the India-EFTA Deal:
  • The India-EFTA agreement is anticipated to exacerbate the existing trade gap. To address this, India advocated for investment commitments within the EFTA deal.
  • Such investments hold the potential to spur economic growth and job creation in India, while granting market access to EFTA countries.
  • The services sector in India could witness significant gains through this deal, further enhancing its capabilities.
• Challenges in Accessing the EFTA Market:
  • Switzerland, a key trade partner within EFTA, opted to eliminate import duties on all industrial goods from January 1, 2024.
  • This move poses concerns for India, particularly regarding its industrial exports to Switzerland, which constitute a substantial portion of India's exports to the country.
  • India may face heightened competition in the market, even with potential tariff eliminations under the agreement.
  • Exporting agricultural products to Switzerland remains intricate due to a complex interplay of tariffs, quality standards, and approval processes.
  • EFTA has not signaled any willingness to eliminate agriculture tariffs on fundamental agricultural goods.
• High Average Tariffs in India
  • India maintains high average tariffs, approximately around 18%, which are among the highest globally.
• Trade Gap Widening in India-EFTA Deal
  • India-EFTA deal expected to widen trade gap.
  • India emphasized investment commitments in the EFTA deal to stimulate economic activity and job creation while providing market access to EFTA.
  • Potential gains for India in the services sector, facilitating further growth.
• Challenges for India Accessing EFTA Market
  • Switzerland, India's primary trade partner in EFTA, eliminated import duties on all industrial goods from January 1, 2024.
  • India faces concerns as industrial goods constitute 98% of its $1.3 billion merchandise exports to Switzerland in FY2023.
  • Increased competition for Indian goods despite potential tariff elimination in the deal.
  • Exporting agricultural produce to Switzerland remains complex due to various tariffs, quality standards, and approval processes.
  • EFTA has not indicated any willingness to eliminate agriculture tariffs on basic agricultural produce.
• Switzerland's Trade Impact on India:
  • Switzerland, being India's primary trade partner within the EFTA countries, chose to remove import duties on all industrial goods from January 1, 2024.
  • This decision to eliminate tariffs on industrial products like chemicals, consumer goods, vehicles, and clothing raises concerns for India, especially since industrial goods make up 98% of India's $1.3 billion merchandise exports to Switzerland in FY2023.
  • Despite the tariff elimination, Indian goods are expected to encounter increased competition in the market.
  • However, exporting agricultural produce to Switzerland remains challenging due to various factors such as tariffs, quality standards, and approval requirements. EFTA hasn't indicated any move towards eliminating agriculture tariffs on basic produce.
• Processed Agricultural Products (PAPs):
  • Processed agricultural products hold a unique position, falling between industrial goods that enjoy free trade and agricultural products that receive protection.
  • Examples of PAPs include chocolate, biscuits, baked goods, sweets, soups, sauces, pasta, ice cream, instant coffee, and various food preparations.
• European Economic Area (EEA):
  • The EEA comprises EU countries along with Iceland, Liechtenstein, and Norway, allowing them to participate in the EU's single market.
  • While Switzerland isn't an EU or EEA member, it is part of the single market, showcasing its unique trade relationship within Europe.

Conclusion

In conclusion, the India-EFTA Trade and Economic Partnership Agreement signifies a significant step towards strengthening trade ties and fostering economic prosperity between India and the EFTA countries.