India and the four-nation European bloc EFTA on Sunday signed a free-trade agreement (FTA). Under the pact, it is for the first time in the history of FTAs that a legal commitment is included, where India has received an investment commitment of $100 billion in 15 years from the grouping.
What Is the European Free Trade Association (EFTA)?
Formed in 1960, the European Free Trade Association (EFTA) is an intergovernmental organisation. It was established as an alternative trade bloc for those European states that were unable or unwilling to join the European Union (EU).
EFTA includes Iceland, Liechtenstein, Norway, and Switzerland. These countries are not part of the EU but have access to its single market through various agreements.
India’s exports to EFTA countries during 2022-23 stood at $1.92 billion, while imports were at $16.74 billion during the last fiscal. The bilateral trade between India and EFTA stood at $18.65 billion in 2022-23, compared with $27.23 billion in 2021-22. Switzerland is the largest trading partner of India followed by Norway.
What Is India-EFTA FTA, Its Key Features?
Under the India-EFTA free-trade agreement, Indian customers will get access to high-quality Swiss products such as watches, chocolates, biscuits, and clocks at lower prices as India will phase out customs duties under the trade pact on these goods over 10 years.
In the services sector, India has offered 105 sub-sectors to the EFTA like accounting, business services, computer services, distribution and health. On the other hand, the country has secured commitments in 128 sub-sectors from Switzerland, 114 from Norway, 107 from Liechtenstein, and 110 from Iceland.
Segments where Indian services will get a boost include legal, audio-visual, R&D, computer, accounting, and auditing. According to the commerce ministry, India’s interests in generic medicines and concerns related to the evergreening of patents have been fully addressed.
Further, the pact would provide an opportunity for domestic exporters to integrate into EU (European Union) markets.
It is for the first time in the history of FTAs, a binding commitment of $100 billion and one million direct jobs in the next 15 years has been given.
It will take up to a year to implement the agreement due to an elaborate ratification process of these pacts in different countries.
The agreement has 14 chapters, including trade in goods, rules of origin, intellectual property rights (IPRs), trade in services, investment promotion and cooperation, government procurement, technical barriers to trade and trade facilitation.
India is offering 82.7 per cent of its tariff lines or product categories, which covers 95.3 per cent of EFTA exports of which more than 80 per cent of imports are gold.
What Items Have Been Excluded from the FTA?
Sectors such as dairy, soya, coal and sensitive agricultural products are kept on the exclusion list and there will not be any duty concessions on these goods. On gold, India has not touched the effective customs duty (15 per cent) but reduced the bound rate by 1 per cent to 39 per cent, which will not have any implication on imports.
India will provide duty concessions on certain production-linked incentive sectors like pharma, medical devices and processed food.
What is The $100-Million Legal Commitment, What If Not Fulfilled?
The EFTA committed an investment of $100 billion — $50 billion within 10 years after the implementation of the agreement and another $50 billion in the next five years – which would facilitate the creation of 1 million direct jobs in India. This is a first-of-its-kind pledge agreed upon in any of the trade deals signed by India so far.
The commitment is the key substance of a TEPA (Trade and Economic Partnership Agreement), which took almost 16 years to conclude, for India in return for opening its markets for several products coming from the EFTA nations.
If the $100-million commitment is not fulfilled, a PTI report citing an official said that there is a provision in the agreement that if the proposed investments would not come because of some reasons, India can “re-balance or suspend” the duty concessions to the four countries.