India-UAE Comprehensive Economic Partnership Agreement (CEPA)

In News

• The India-UAE Comprehensive Economic Partnership Agreement (CEPA) is creating a significant positive impact on India-UAE trade.

About

• The CEPA agreement came into effect on 1st of May this year. 
• Exports (Excluding Petroleum Products): 
  • Indian exports to the UAE grew from 5.17 billion dollar from June to August last year to 5.92 billion US dollar during June to August this year. It denotes an increase of 14 percent. 
  •  India’s global non-petroleum exports during the same period (Jun-Aug 2022) grew by 3% on an annual basis.
  • Indian exports are likely to increase further in the coming months with increasing use of the CEPA by the exporters and with dedicated efforts from the Department of Commerce.
• Imports: 
  • Indian imports from the UAE during the same period also grew from 5.56 billion dollar to 5.61 billion dollar or an increase of 1% in percentage terms.
• India’s non-oil export growth of around 14% on year-on-year basis 
• Growth seen despite Background struggles, like: 
  • Conflict in Ukraine, 
  • COVID-19 related lockdowns in China, 
  • Rising inflationary pressures, 
  • Expected Policy tightening in advanced economies, 
  • Global growth slowdown and 
  • Consequent reduced demand, 
  • Reduction in global merchandise trade (growth slowed down to 3.2% in Q1 2022 vis-a-vis 5.7% in Q4 2021)etc.
• WTO Forecast: 
  • WTO’s global trade growth forecast for the entire year 2022 was at 3% in April 2022. 
  • This forecast is expected to be revised downwards as the macroeconomic headwinds have worsened since April 2022.
• Future prediction: 
  • Indian exports are likely to increase further in the coming months with increasing use of the CEPA by the exporters.
• Why is oil trade not included?
  • Oil trade has not been considered as import increase in oil/petroleum products is largely on account of the rise in global prices and to a certain extent on an increase offtake in volumes. 
  • Bulk of the oil imports from the UAE are of Crude Petroleum, the demand for which is inelastic and the customs duty for which is very low.

Image Courtesy: PIB 

India-UAE CEPA Trade Deal

• The new strategic economic agreement will increase bilateral trade in goods to $100 billion in five years (2022-27) of the signed agreement and increase trade in services to $15 billion.
• The Agreement is a comprehensive agreement which will cover:
  • Trade in Goods, Rules of Origin,
  • Trade in Services,
  • Technical Barriers to Trade (TBT),
  • Sanitary and Phytosanitary (SPS) measures,
  • Dispute Settlement,
  • Movement of Natural Persons,
  • Telecom,
  • Customs Procedures,
  • Pharmaceutical products,
  • Government Procurement,
  • IPR, Investment,
  • Digital Trade and Cooperation in other Areas.
• It will include a digital trade element, which is a first of its kind for both countries.
• The United Arab Emirates is India’s third largest trading partner and second largest export destination.
  •   The UAE is also the eight largest investor in India with an estimated investment of US$ 18 billion.
• Bilateral trade between India and the UAE stood at $43.3 billion in 2020-21.
  • Exports were $16.7 billion, and imports, driven by oil, pushed the balance in favour of the UAE at $26.7 billion in 2020-21.

Significance of the deal

• Enhanced market access: The agreement will provide significant benefits to Indian and UAE businesses, including enhanced market access and reduced tariffs.
• The CEPA will boost bilateral trade from the current $60 billion to $100 billion in the next 5 years.
• India welcomed investment from the Gulf country into Jammu and Kashmir that would open new routes for regional trade and connectivity and advance the collective interests of India, Israel, the UAE and the United States.
• The deepening of the relationship with the UAE would also help Indian exporters gain access to other West Asian countries, Africa and some parts of Europe.
• Digital trade: 
  • Early harvest agreement would likely include a chapter on digital trade which would be aimed at enhancing cooperation between the two countries on digital trade in the future.
  • Digital trade is likely to include frameworks on paperless trading, digital payments and online consumer protection, as well as address issues such as intellectual property rights in digital trade, and challenges to small and medium enterprises.
• The UAE hopes to get enhanced market access in India for its petrochemicals, metals and dates.
• Indian goods will flow to the other GCC countries as the UAE has no customs barriers.
• Energy ties: UAE is India’s third largest supplier of crude oil and second largest supplier of LPG and LNG. Renewable energy is the next stop for bilateral energy ties.
• It may also give a boost to India’s jewellery exports.  
• It is expected to create new jobs, raise living standards, and provide wider social and economic opportunities in both nations.

Issues/ Challenges

• Lack of negotiations:
  • A free trade agreement with the GCC comprising Saudi Arabia, Kuwait, UAE, Oman, Qatar and Bahrain as its members was first envisaged in 2007, but got stuck after a couple of rounds of negotiations.
• Lacking Global Giant Experience: 
  • Despite being a US $2.5 trillion economy, Indian businesses are small in size. In fact, none of the Indian business giants come close to the big global conglomerates that have the capacity, infrastructure and experience to handle huge investments. 
• Procedural Issues: 
  • Including lack of planning, lack of complete information, bureaucratic bottlenecks continue to remain a challenge for foreign investors despite significant efforts by the government in this direction to make investments easy and convenient. 
• Legal Issues:
  • Legal problems have in the past dampened foreign investments from coming to India. For example, the investments from UAE’s Etisalat and Etihad had got stuck in legal problems, thus dampening investor enthusiasm. While checks and regulations are needed, better streamlining of the procedures and processes help in avoiding such problems.
• Political Will: 
  • There are challenges pertaining to political diversions, especially when an election year is approaching. 
  • India has a tendency to become focused inward and in the process, ignore foreign policy. 
  • The UAE with an appetite for large-scale investments needs to be continuously engaged. 

Conclusion

• There is tremendous potential and scope CEPA carries toward bolstering Indian businesses. 
• Also, there are certain areas that India needs to be wary of, for instance the Golden Visa scheme and its marketing as well as its meaning for the education, tourism, hospitality, and IT sectors. 

Source: AIR