In the past, India has been overly cautious in international trade negotiations given its socialist orientation. In sharp contrast, the Narendra Modiled-NDA government has followed a more aggressive approach to Free Trade negotiations (FTAs). Given India’s presidency of the G20 recently, FTAs have been signed in 2022. The India-United Arab Emirates (UAE) Comprehensive Economic Partnership Agreement (CEPA) was signed in February but came into force on May 1, 2022. The Australia-India Economic Cooperation and Trade Agreement (AI-ECTA) was signed in April 2022. It was passed in November by the Australian Parliament. Once Rishi Sunak became the Prime Minister of Britain on Diwali, serious attempts to negotiate an FTA between India and the UK began. India is negotiating FTAs with Israel, Canada, the Gulf Cooperation Council (GCC), and the European Union (EU).
Breakdown in FTA negotia- tions with RCEP and EU
Although the Manmohan Singh-led UPA government had begun to take the initiative in signing FTAs since 2004, including the one with the GCC, the only one finally signed in August 2011 was India-Japan CEPA. The negotiations for the Chinabacked Regional Comprehensive Economic Partnership (RCEP) began under the UPA II in 2013 but finally, India pulled out in late 2019. Negotiations failed to address India’s core concerns. Threats of circumvention of rules of origin due to tariff differential, failure of inclusion of fair agreement to address the issues of trade deficits and opening of services were the main hurdles. Similarly, the IndiaEU FTA negotiations have hit multiple walls since talks started in 2007. India’s withdrawal from the RCEP and rivalry with China persuaded the NDA government to look for new markets and partners abroad.
India-UAE (CEPA) is the template for India-GCC FTA
Among all these agreements, the India-UAE (CEPA), a 320-pages comprehensive document, was negotiated and signed within a short frame of 88 days. The UAE is a Confederation of seven countries, including Abu Dhabi, Dubai, Sharjah, Ajman, Fujairah, Ras Al Khaimah, and Umm al Quwain “The India-UAE (CEPA) is likely to become the template for the IndiaGCC FTA,” says Dr Nisha Taneja, a trade expert with ICRIER in Delhi.
A new clause is added to the India-UAE (CEPA) to encourage other GCC countries to join the FTA agreement, making it a regional agreement. The other GCC members will have the option to join the IndiaUAE trade deal on the same terms and conditions if the launch of the FTA negotiations between New Delhi and the GCC gets delayed. The Commerce Ministry sources point out that finalisation of the trade deal with GCC could be tricky, considering the differences between some of the GCC nations.
The GCC is a union of six countries in the Persian Gulf region (Arabian Gulf for the Arabs) — Saudi Arabia, the UAE, Qatar, Kuwait, Oman and Bahrain. The GCC is the largest trading bloc of India. India’s exports to the six GCC member countries grew by 58.26 per cent to about $44 billion in 2021-22 against $27.8 billion in 2020-21. Bilateral trade in goods increased to $154.73 billion in 2021-22 from $87.4 billion in 2020-21. Services trade between the two regions was valued at around $14 billion in 2021- 22, with exports aggregated at $5.5 billion and imports at $8.3 billion, according to sources in the Commerce Ministry.
Why is India-UAE (CEPA) key to India’s free trade strategy?
Why is the India–UAE CEPA key to India’s geoeconomic strategy? The UAE, and by extension the GCC region, is a natural partner of India, given that the countries share trade complementarities. (See Page 12 for a related report on India-GCC relations). Mineral fuels, precious metals, ships, iron and steel, and nuclear appliances are all sectors where the countries share complementarities.
Given this, the tariff reductions from the India-UAE (CEPA) are likely to be beneficial to address the inverted duty structures and instability caused by domestic tariff changes. Almost 90 per cent of exported products from India, according to the India-UAE (CEPA) will attract zero duty once the FTA begins to be implemented on the ground.
India is hitting sixers on the front foot
According to the International Trade Centre’s Export Potential Map, India has about US$10.1 billion of untapped goods trade potential with the UAE. The conclusion of India–UAE CEPA is the first step in India actively seeking market access abroad, hitting sixers on the front foot, instead of simply batting defensively on the back foot. At a policy level, India and the Gulf Cooperation Council (GCC) have agreed to pursue a free trade agreement (FTA) between the two regions and resume negotiations, Commerce and Industry Minister Piyush Goyal said on November 23. “We have agreed to pursue the free trade agreement between GCC and India and resume the negotiations and conclude the same at the earliest,” Goyal declared to the media in a joint press conference with GCC Secretary General Nayef Falah M Al-Hajraf.
GCC countries contribute almost 35 per cent of India’s oil imports and 70 per cent of its gas imports. India’s overall crude oil imports from the GCC in 2021-22 were about $48 billion, while LNG and LPG imports in 2021- 22 stood at about $21 billion. The India-UAE (CEPA) has some indicators about India’s approach to future FTAs. Free Trade scholar Jhanvi Tripathi of the ORG argues that the CEPA is very ambitious on tariff reduction. However, there remains an element of wariness in the new issues included such as the digital trade component, even as understandings of standards are pushed further.
If we look at the top 10 traded products between India and the UAE, by value, we find that trade on common product lines. One possibility, according to Tripathi, is that one of these markets is being used simply for exports to other markets. This, while true for some products may not be the full story. “This is because both countries do not have an overly wide market access network of FTAs or preferential treatment based on development status. The other, more likely, the possibility is that a value chain exists on these common product lines,” argues Tripathi.
In a recent report “FTAs, Fabulous, Futile or Flawed,” Global Trade Research Initiative argued that India is unlikely to gain from the signing of new FTAs currently under negotiation. Professor Sachin Chaturvedi disagrees with such sceptics. Chaturvedi argues that Directorate General of Commercial Intelligence and Statistics (DGCIS) data shows that India’s merchandise exports to those countries and regions with which India has signed the FTAs have registered a growth of 20.75 per cent in just the last five years. India’s exports to ASEAN have increased from $ 25.13 billion in 2015- 16 to 31.49 billion in 2020-21. To conclude positively on the FTA agenda, the new resolution among policymakers is to deeply integrate India with the world’s leading economies to transform India into a prosperous economic superpower.
