India-UAE Trade Deal

In News

• The Union Minister of Commerce and Industry announced the unveiling of the Comprehensive Economic Partnership Agreement (CEPA) between India and the United Arab Emirates (UAE) at a press conference held during his visit to the United Arab Emirates.

What is CEPA?

• It is a kind of free trade pact that covers negotiation on the trade in services and investment, and other areas of economic partnership.
• India has signed CEPAs with South Korea and Japan.

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 favor of the UAE at $26.7 billion in 2020-21.

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. 

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.

Way Ahead

• The India-UAE CEPA will further cement the already deep, close and strategic relations between the two countries and will create new employment opportunities, raise living standards, and improve the general welfare of the peoples of the two countries.
• Further, both countries need to identify clear areas of focus and establish ways of working together to resolve trade remedy cases. 

Source: PIB