TEPA with EFTA — welcome but no big deal

Last week, India entered into Trade and Economic Partnership Agreement (TEPA) with the European Free Trade Association (EFTA), a loose grouping of Iceland, Liechtenstein, Norway, and Switzerland — countries that are not in the European Union. It looks like a step forward but assessment of gains from this FTA is rather difficult.

The combined population of these four countries is about 14.5 million — less than the population of some of our big cities. Their combined GDP is slightly less than a third of India; probably, about one fourth in purchasing power parity terms. Their per capita GDP is about 40 times higher than India. In 2022-23, INDIA-EFTA two-way trade was $18.65 billion and India’s trade deficit with these countries was $14.8 billion. In the broader context of India’s total exports and imports, these figures don’t amount to much. Gold imports at about $12.86 billion from Switzerland alone account for about 74.82 per cent of total imports from EFTA countries. Many Swiss manufacturing companies are established in India. A few Indian software companies are present in Switzerland.

The EFTA’S market access offer covers 100 per cent of non-agricultural products and tariff concessions on processed agricultural products. India is offering 82.7 per cent of its tariff lines which cover 95.3 per cent of EFTA exports. The effective duty on gold remains untouched. Sectors such as dairy, soya, coal and sensitive agricultural products are kept in the exclusion list. The EFTA is offering 92.2 per cent of its tariff lines which covers 99.6 per cent of India’s exports.

The highlight of the TEPA is the intent of the EFTA countries to promote investments in India. The aim is to increase the stock of foreign direct investments by $50 billion in India in the next 10 years and $50 billion more in the next 5 years and to facilitate the generation of 1 million direct employment in India, through such investments. It is not a legal commitment.

Commercial considerations alone can bring that kind of investment.

The TEPA comprises of 14 chapters with main focus on market access related to goods, rules of origin, trade facilitation, trade remedies, sanitary and phyto-sanitary measures, technical barriers to trade, investment promotion, market access on services, intellectual property rights and sustainable development besides inclusive growth, environmental protection, etc. and other legal and horizontal provisions. The TEPA indicates that India is abandoning its earlier rigid postures and is willing to bring in and negotiate nontrade related issues in broader economic partnership agreements. It suggests a slight shift in policy for a country that has embraced protectionism and self-sufficiency. To that extent, the TEPA can be seen as a forerunner and an indication on how India may approach the negotiations with the European Union and United Kingdom.

The database of the World Trade Organization (WTO) shows that there are 361 trade agreements in force and 208 are inactive. Many other trade agreements are defunct.

The successful ones are the regional trade agreements in East Asia, Europe and North America. Many trade agreements result in trade diversion rather than trade creation. Benefits evaporate when partner countries enter into similar agreements with competing economies. Countries with high tariffs, usually the poorer ones, give away more market access than the countries, usually the richer ones, with lower tariffs. So, TEPA deserves a welcome but not much should be expected from the deal.