The India-EFTA trade pact: A milestone

The India-EFTA trade pact is a milestone, a free trade agreement signed after 15 years of negotiation and possibly a breakthrough which may be of great assistance for.

On March 10th, India signed a major trade deal with the European Free Trade Association (EFTA). EFTA is a group of four European countries – Iceland, Liechtenstein, Norway, and Switzerland. This free trade agreement (FTA) is the first of its kind between India and a Western bloc.

The agreement binds these four countries to bring $100 billion in investments to India over the next 15 years, potentially creating 1 million new jobs. Negotiations for the FTA lasted 16 years in total, with a 5-year break in between, reports European Times.

The signing ceremony in India involved important government officials from both sides, including India’s Commerce Minister Piyush Goyal and his counterparts from the EFTA nations.

It is arguably the first time in the history of free trade agreements that a binding commitment of $100 billion investment and 1 million direct jobs has been made.

The India-EFTA Trade and Economic Partnership Agreement (TEPA) covers a wide range of areas including trade in goods and services, investment promotion, intellectual property rights, government purchases, sustainable development practices in trade, and a system to resolve disputes.

This agreement is expected to benefit both sides. Indian businesses will gain easier access to European and international markets. EFTA countries will be able to sell their goods and services to a large and growing Indian market. In addition, EFTA countries are expected to invest more in India, which will create new jobs.

Despite its relatively small size, EFTA ranks as the world’s ninth largest trader of goods and the fifth largest for commercial services, with a combined GDP exceeding $1 trillion. India signed a trade agreement with EFTA, hoping to build on its existing trade partnerships with the UAE and Australia.

This deal is expected to increase Indian exports of pharmaceuticals, garments, chemicals and machinery to EFTA countries. Additionally, India anticipates attracting investments from EFTA in areas like automobiles, food processing, railways and finance.

This agreement strengthens India’s trade ties with EFTA, which was already its fifth-largest trading partner in 2023, with total trade exceeding $25 billion.

According to a report in Financial Times, the agreement is very comprehensive, covering over 80 per cent of India’s products (tariff lines) and 95 per cent of EFTA’s exports. This means that almost all goods exported between these regions will benefit from reduced or eliminated tariffs.

It will be significantly cheaper and easier to trade goods between India and EFTA countries.

Trade between India and the EFTA countries (Iceland, Liechtenstein, Norway, and Switzerland) declined slightly from $27.23 billion in 2021-22 to $18.65 billion in 2022-23. Switzerland remains the biggest trading partner with Norway following close behind.

The agreement aims to significantly boost trade and investment. EFTA nations have set an ambitious target of increasing foreign direct investment in India by $100 billion over 15 years. To ensure this investment happens, India can revoke tariff concessions if commitments aren’t met.

India will allow duty-free import of most Indian industrial goods and processed agricultural products. In return, India will reduce tariffs on 82.7 per cent of its products for EFTA countries.

However, to protect domestic industries, some sensitive products like dairy and certain agricultural goods are excluded. Interestingly, over 80 per cent of EFTA’s exports to India are gold, so India has only slightly reduced the maximum tariff rate on gold.

Additionally, India will offer reduced tariffs for specific sectors it is aiming to boost, like pharmaceuticals and medical devices. India exports manufactured goods and resources back to these countries. These exports include chemicals, iron and steel products, precious stones like diamonds and gems, yarns, sporting goods, glassware, and even bulk drugs.

The agreement is expected to boost India-Switzerland economic ties in particular. India sees this as an opportunity to strengthen its trade relationship with Switzerland, its biggest partner within EFTA.

The agreement is mutually beneficial, with Switzerland already having a significant presence in India through companies like Nestle and UBS, while major Indian IT firms are established in Switzerland.

Swiss manufacturers of machinery, luxury goods, and transportation equipment will benefit from reduced tariffs when exporting to India’s massive market. EFTA countries will also gain easier access to the Indian market for processed foods, beverages, and other technical products.

The final leg of negotiations between India and the European Free Trade Association (EFTA) concluded quickly because both sides prioritised compromise and mutual respect. A Swiss official highlighted several key factors.

First, clear ground rules were established from the beginning. Second, both India and EFTA aimed for a balanced agreement that addressed each other’s concerns. Importantly, India’s recent improvements in handling intellectual property rights (IPR) were helpful, particularly regarding the time-consuming process for opposing foreign patent applications.

While Switzerland couldn’t get stronger IPR protections in the deal, they did ensure India would uphold existing World Trade Organisation (WTO) commitments. Finally, the deal includes a commitment from EFTA countries to invest $100 billion and create one million jobs in India over 15 years.

If these goals aren’t met, the agreement will be reviewed. Additionally, Switzerland is exploring a separate agreement to facilitate mobility for young Indian professionals with advanced degrees.

In a 16-year-long collaboration marked by 21 formal rounds of talks, India and the EFTA have sealed a transformative Trade and Economic Partnership Agreement (TEPA). Prime Minister Narendra Modi celebrated TEPA as a pivotal moment for both India and the EFTA nations.

He emphasised its role in fostering open, fair, and balanced trade, foreseeing economic growth and increased job opportunities. Modi also highlighted potential collaborations in research and development, leveraging the innovative prowess of EFTA countries.

This landmark deal is the latest achievement in India’s strategic trade endeavours, following agreements with the United Arab Emirates and Australia.

Looking forward, discussions with heavyweight partners like the European Union and the UK, as well as smaller nations such as Oman and Peru, continue to shape India’s global trade narrative.

As the curtain rises on this chapter, India’s commitment to fair trade, economic progress, and youth employment echo loudly on the international stage.

The author, Dr Divya Rani, is an Assistant Professor in the Department of Political Science at BHU, Varanasi. She earned her PhD from the School of International Studies, JNU with a specialisation in European Studies.