India-EFTA TEPA: India is Set to Conclude a Trade Pact with EFTA Bloc

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India-EFTA TEPA: India is Set to Conclude a Trade Pact with EFTA Bloc Blog Image

What’s in Today’s Article?

  • Why in News?
  • What is the European Free Trade Association (EFTA)?
  • Economic Relations Between the EFTA States and India
  • What is the Trade and Economic Partnership Agreement (TEPA)?
  • Benefits of TEPA

Why in News?

  • India and the four-nation European Free Trade Association (EFTA) grouping - comprising Iceland, Liechtenstein, Norway and Switzerland - are set to conclude a trade deal on March 10.
  • The Trade and Economic Partnership Agreement (TEPA) is among three free-trade agreements (FTAs) India is pushing to finalise this month (two other deals are with Oman and the UK), before the Model Code of Conduct.

What is the European Free Trade Association (EFTA)?

  • The EFTA is the intergovernmental organisation of Iceland, Liechtenstein, Norway and Switzerland.
  • It was set up in 1960 (by the Stockholm Convention in 1960)by its then seven Member States for the promotion of free trade and economic integration between its members.
  • The organisation operates in parallel with the European Union (EU), and all four member states participate in the European Single Market and are part of the Schengen Area.
    • However, they are not a party to the European Union Customs Union.
  • The main tasks of the Association are threefold -
    • Maintaining and developing the EFTA Convention, which regulates economic relations between the four EFTA States;
    • Managing the Agreement on the European Economic Area (EEA Agreement), which brings together the EU and 3 of the EFTA States - Iceland, Liechtenstein and Norway - in a single (internal) market.
    • Developing EFTA’s worldwide network of free trade agreements.

Economic Relations Between the EFTA States and India:

  • Over the past two decades, the total trade between the EFTA States and India has been growing steadily.
  • In 2022, the combined EFTA-India merchandise trade surpassed USD 6.1 billion.
  • The primary imports to the EFTA States consisted of organic chemicals (27.5%), while machinery (17.5%) and pharmaceutical products (11.4%).
    • India’s main imports from Switzerland in FY23 included: gold: $12.6 billion, machinery: $409 million, pharmaceuticals: $309 million, coking and steam coal: $380 million, etc.
  • Furthermore, services trade and foreign direct investment (FDI) have also reached substantial levels.

What is the Trade and Economic Partnership Agreement (TEPA)?

  • India-EFTA TEPA would see the European bloc committing an investment of $100 billion in India over 15 years in sectors including pharma, food processing, engineering and chemicals.
  • The investment commitment, the first of its kind in an FTA, would largely come from provident funds in EFTA countries.
    • These include Norway’s $1.6-trillion sovereign wealth fund, the world’s largest pension fund.
  • However, the investment commitment may not be legally binding and falls under “investment promotion”.
  • Also, this is not a Bilateral Investment Treaty (BIT), as is being negotiated with the UK and the EU.

Benefits of TEPA

  • For EFTA:
    • Trade agreements have historically helped India’s partner countries because of high average tariffs in India (hover around 18%, among the highest in the world).
    • After the India-EFTA deal, India could see higher imports of machinery, pharmaceuticals, medical instruments and machinery as there would be a sharp reduction in Indian tariffs.
    • Therefore, an investment commitment is crucial as India-EFTA trade is largely in favour of the European grouping as far as goods are concerned.
    • For example, India runs a high trade deficit with Switzerland, which could widen after India eliminates duties as part of the deal.
  • For India:
    • India is looking to attract investments and get better market access for its service sector workforce.
    • EFTA is also looking at striking joint ventures in pharma, (especially medical devices), chemicals, food processing and engineering.
    • India is looking at the EFTA deal to help diversify imports away from China. India currently depends on China for key medical imports.

Q1) What are Free Trade Agreements (FTAs)?

FTAs are entered into by two or more countries who want to specifically identify the duties and tariffs that are to be imposed on member countries when it comes to imports and exports.

Q2) How does FTA benefit India?

India's new FTA strategy seeks reliable and robust supply chain allies that will provide investment, technology access and sustainable trade. Along with lowering tariffs, priorities include production integration, digital trade and environmental protection.