Why is the trade deal with UAE a significant step for India?

India signed a comprehensive free trade agreement with UAE on Friday. What does this trade agreement mean for New Delhi and what the govt is planning to achieve through this? Find out in this report


free trade agreement | India-UAE trade | International trade

On February 18th, India and the United Arab Emirates signed the Comprehensive Economic Partnership Agreement or CEPA, which is the first free trade agreement finalised by the Narendra Modi-led government since it came to power in 2014. (VO 1) The deal was negotiated in a record 88 days and will come into force from May. It aims at increasing the non-oil trade between the two countries to $100 billion in five years from $45 billion 2021. The UAE is currently India’s third-largest trading partner and the second-largest export destination, after the US. While India is the UAE’s second-largest trading partner and the largest in terms of exports. The trade pact is expected to benefit around $26 billion worth of Indian products that are subject to 5% import duty by the UAE. The UAE will remove customs tariffs on nearly 80% of the goods, which account for 90% of India’s exports to the Gulf nation by value. India expects CEPA to generate 10 lakh jobs across labour-intensive sectors such as textiles, gems & jewellery, leather, footwear, pharma, agriculture products, medical devices, sports goods and automobiles. Not just goods, CEPA also covers 11 service sectors and over 100 sub-sectors, which include business services, telecommunications, construction, education, tourism, nursing, finance among many others. The agreement is wide in its scope and includes areas like government procurement, digital trade and intellectual property rights. To protect the interests of domestic producers, India has kept items such as dairy, fruit, cereals, vegetables, tea, coffee, tobacco, dyes, soaps, footwear, petroleum, tyres, toys, aluminium scrap, copper, processed marble, among others, out of the trade pact. The trade deal has also provided a permanent safeguard mechanism, which will protect exporters and businesses from both countries from any unwarranted surge in volumes of any particular product. But the deal comes with stringent rules of origin conditions. At least 40% value addition has been mandated for most goods to avoid routing of products manufactured in third countries to India via UAE. For the first time in a trade agreement, the CEPA provides for automatic registration and marketing authorisation of Indian generic medicines in 90 days, once they are approved in any of the developed countries. India has given duty concessions on gold imported from the UAE, while Indian exporters will get zero duty access to the UAE market for jewellery. This assumes significance as the two countries account for over 16% of the global trade in diamonds, gold, and jewellery.

India is looking to enter into a similar agreement with the Gulf Cooperation Council during this this year itself

Amitendu Palit spells out the larger importance of the deal beyond the trade aspects and explains how it marks a change in India’s approach towards international trade policy India had pulled out of Regional Comprehensive Economic Partnership, the world’s biggest free trade deal signed by 15 Asia-Pacific economies in November 2020 over worries that cheap Chinese imports would flood the Indian market harming domestic producers. It also faced opposition from farmers, especially the dairy industry. India’s manufacturing sector is less competitive in several categories when compared to many other Asian countries. India also wanted stricter rules of origin in RCEP. India’s concerns are not misplaced. Analysis by a national daily showed that between FY11 and FY21, exports to nine countries and two trading blocs, with which India has trade agreements, grew 36% to $62 billion while imports from these countries grew 44% to nearly $75 billion, doubling the trade deficit to $11.8 billion from $5.8 billion in a decade. India is rushing to finalise mutually-beneficial early harvest deals with the countries it is negotiating FTAs that would exclude sensitive issues until a full-fledged FTA is finalised. While CEPA is a good start to help increase the integration of Indian producers with global supply chains, it does not make up for the negative effects of India choosing to sit out of the RCEP.

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First Published: Wed, February 23 2022. 08:15 IST