Author : Jhanvi Tripathi

Expert Speak Raisina Debates
Published on Mar 15, 2022 Updated 7 Days ago
The India-UAE Comprehensive Economic Partnership Agreement (CEPA) will help augment India's economy and help it to pursue its geoeconomic strategy
India–UAE CEPA and the future of India’s Free Trade Agreements When it comes to international trade negotiations, India is notorious for being cautious and slow. It is, therefore, remarkable that the government has concluded a full-fledged Comprehensive Economic Partnership Agreement (CEPA) with the United Arab Emirates (UAE) in 88 days. The new CEPA has a number of indicators about India’s approach to future Free Trade Agreements (FTAs). On the one hand, 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 on standards are pushed further.
India’s withdrawal from the RCEP and its constructed rivalry with China has understandably led the country to look for new markets and partners to the west.
India’s hesitation over new trade agreements is exhibited by the state’s recent history with trade negotiations. Whether it be the Regional Comprehensive Economic Partnership (RCEP), or its attempt to restart negotiations with the European Union (EU). The negotiations for RCEP went on for six years from 2013 onwards; India pulled out in late 2019. The EU negotiations have hit multiple walls since talks first started 15 years ago in 2007. The last agreement it signed was the India–Japan CEPA in August 2011. Since then, while there have been lengthy negotiations and even upgrades to old FTAs, no new trade deals have been signed. India’s withdrawal from the RCEP and its constructed rivalry with China has understandably led the country to look for new markets and partners to the west. There are several reasons why the India–UAE CEPA is crucial to India's geoeconomic strategy. The UAE, and by extension the GCC region, is a natural partner for this, given that the countries share complementarities when it comes to trade. India’s problem when trading with its East and South East Asian partners has usually been the competitive nature of products traded. Meanwhile, 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 the India–UAE CEPA is an important first step in India actively seeking market access instead of simply being on the defence.
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.
If we look at the top 10 traded products between India and the UAE by value (Table 1 and 2 below), we find that trade has been occurring on common product lines. This implies one of two things. One possibility is that one of these markets is being used simply for exports to other markets. This, while potentially 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, possibility is that a value chain exists on these common product lines. Mineral fuels, precious metals, ships, iron and steel, nuclear appliances are all sectors where the countries share complementarities. Given this, the tariff reductions from the CEPA will be beneficial to address the inverted duty structures<1> and instability caused by domestic tariff changes. It is then a welcomed aspect that  90 percent of exported products from India will attract zero duty with the  agreement entering into force on 1 May 2022. Other developments also indicate more ambition on the Indian front. Negotiation of the automatic registration and marketing authorisation clause for Indian pharmaceutical generics is a very interesting development in terms of standards recognition. This authorisation will function in case of approvals from developed countries. However, this is an important step towards India pushing for mutual recognition of its own standards in future. It is something to aim for, both from a standards harmonisation and a cost of compliance perspective. An adjunct to the standards rules are the strict Rules of Origin (RoO). The CEPA has a 40 percent value addition requirement. While important, the RoO value may become an issue in the future. The requirement implies that for a product to be deemed an export from India/ the UAE, at least 40 percent of new value will have to be added to it in the country of origin. For sectors such as precious metals where such amount of value addition is not possible, this will be better clarified once the text of the agreement is made available to the public.
The requirement implies that for a product to be deemed an export from India/ the UAE, at least 40 percent of new value will have to be added to it in the country of origin.
Another part of the agreement which will bear scrutiny when the text is made available is the agreement on e-commerce and digital trade. While it is not the first time that India has included an e-commerce chapter in an FTA, the rules have never pushed the bounds of liberalisation beyond World Trade Organisation (WTO) requirements. According to reports, the chapters on IPR, digital trade, and government procurement, will all be on a ‘best endeavour’ basis. Regardless, there are already two takeaways here. First that the FTA will ostensibly include a larger gamut of digital trade issues beyond the moratorium on customs duties on e-commerce transactions. Secondly, there are no binding commitments on these issues, maintaining India’s international position on not taking WTO-plus<2> requirements on these topics. Overall, the India–UAE CEPA gives the sense of furthering the current government’s emphasis on export promotion. If implemented correctly, it will be a valuable tool in the hands of Indian industry, for whom the UAE, and by extension the Gulf, is a familiar market. It also shows a level of continuity in India’s position on trade issues like IPR and digital trade which may throw up hurdles in India’s ongoing negotiations with the EU, and the UK. In the meantime, the India–UAE CEPA serves the purpose of reducing uncertainty and political risk between two important trade partners.
<1> Inverted duty structure implies that the tariff on intermediary products is higher than on the final good increasing the domestic cost of production <2> WTO-plus requirements are those rules in any trade agreement that push the scope of liberalisation of trade rules beyond what is agreed at the WTO.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.

Author

Jhanvi Tripathi

Jhanvi Tripathi

Jhanvi Tripathi is an Associate Fellow with the Observer Research Foundation’s (ORF) Geoeconomics Programme. She served as the coordinator for the Think20 India secretariat during ...

Read More +