Business Standard

TEPA with EFTA — welcome but no big deal

- TNC RAJAGOPALA­N Email: tncrajagop­

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.

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