NCERT Basics for UPSC & Other Civil Services ExamsRelevance to UPSC CSE
The India-EFTA trade agreement is highly relevant to UPSC aspirants, covering key areas of the syllabus. In Prelims, it relates to current events and economic development. For Mains, it falls under GS Paper II’s International Relations, focusing on bilateral agreements and their impact on India’s interests. In GS Paper III, it touches upon economic development, the effects of liberalization, and infrastructure growth. This agreement offers a practical example of how global trade dynamics and policies can influence India’s economic strategies and international relations, making it a crucial topic for both understanding and examination perspectives.
Introduction
On March 10, an unprecedented move in international trade relations unfolded as India inked a landmark trade agreement with the European Free Trade Association (EFTA)—comprising Iceland, Liechtenstein, Norway, and Switzerland. This agreement, heralding a staggering $100 billion investment over the next 15 years, marks a significant pivot in global trade dynamics, particularly for India, as it seeks to diversify its imports away from its traditional reliance on China. This strategic maneuver comes at a critical juncture, with over 64 countries, including India, on the brink of electoral cycles that could potentially halt the momentum of free trade agreements (FTAs), underscoring the urgency and the significance of this accord.
The timing of the agreement is particularly crucial, given the global supply chain’s rapid realignment, which is witnessing a historical shift in investment patterns away from China. With the global gaze fixed on India as a promising investment haven, the EFTA deal not only secures a future of economic vitality for India but also positions it as a formidable contender on the world stage against other emerging economies. This deal, however, is just a piece of a larger puzzle in the complex web of India’s trade relations, especially as negotiations with major players like the UK and the EU hang in the balance amid political uncertainties.
Embracing New Horizons!
The India-EFTA Trade & Economic Partnership Agreement (TEPA) marks a historic milestone in our growing partnership with European Free Trade Association nations.
This landmark agreement, inked under the steadfast leadership of PM @NarendraModi ji, will… pic.twitter.com/QuBxWBgXdR
— Piyush Goyal (मोदी का परिवार) (@PiyushGoyal) March 10, 2024
Historical context
“Let us take it as a sign of the times that the world has discovered the virtue of NAMASTE, the India Way of greeting with folded hands”. – S. Jaishankar
Historical Context: From Colonial Ties to Strategic Partners
Historically, the relationship between India and European countries was shaped by the spirit of mercantilism, marked by European capital adventurism. For instance, the early mercantile relations between Norway and India date back to the 1600s with the establishment of a Danish-Norwegian trading station in Tranquebar, present-day Tharangambadi in Tamil Nadu. Similarly, commercial contacts between India and Switzerland can be traced back to the early 19th century, signifying a long history of economic engagement albeit within the exploitative framework of colonialism. However, the narrative has significantly shifted from viewing India as a “cash cow” to recognizing it as a “partner of choice” in a multi-aligned world. This transformation reflects not only a change in the European outlook towards India but also an acknowledgment of India’s rising stature and its pivotal role in global governance.
The path to the Free Trade Agreement (FTA) between India and the European Free Trade Association (EFTA) countries—Norway, Switzerland, Iceland, and Liechtenstein—has been navigated with strategic caution and an eye towards balancing economic benefits with trade deficits. This journey underscores the evolving economic dynamics and the mutual aspirations for a fruitful partnership.
Strategic Trade Considerations
Trade Volume and Balance: Despite the EFTA region representing a relatively small fraction of India’s total exports (0.4%), the imports from these four member countries constitute a more significant portion of India’s import share (2.4%), indicating a trade relationship that is substantial but also skewed. This asymmetry, particularly pronounced in trade with Switzerland, India’s primary trading partner within the EFTA, has necessitated a cautious approach from Indian negotiators, especially concerning tariff eliminations that could potentially widen the trade deficit.
Switzerland’s Dominant Trade Role: The trade relationship with Switzerland is particularly noteworthy, with India’s imports reaching nearly US$14 billion from January to December 2023, against exports totaling US$877 million.
Diverse Export Portfolio
India’s Export Strengths: Key Indian exports to the EFTA nations encompass a diverse range of products including chemicals, semi-precious stones, ships, boats, pharmaceuticals, and electronic instruments. This varied export portfolio underscores India’s competitive edge in several sectors, highlighting potential areas for growth and collaboration under the FTA framework.
Growing Trade and Investment
Evolving Trade and Investment Landscape: Over the past two decades, the total trade between the EFTA States and India has seen a steady increase, with the combined EFTA-India merchandise trade reaching USD 5.5 billion in 2023. Organic chemicals, machinery, and pharmaceutical products, excluding gold, emerge as significant components of this trade, showcasing the complementary economic interests of the parties involved. Additionally, the services trade and foreign direct investment between EFTA countries and India have reached substantial levels, reflecting the depth of economic engagement and the potential for future growth.
Description – Above image reflects evolving relation between India and EFTA from a mere colonia state to that of equal partner
Understanding the European Free Trade Association (EFTA)
What is the European Free Trade Association?
The European Free Trade Association (EFTA) is a regional trade organisation and free trade area consisting of four European countries: Iceland, Liechtenstein, Norway, and Switzerland. Established in 1960, EFTA aims to promote free trade and economic integration among its members and with the rest of the world.
What is Free Trade?
Free trade refers to the elimination or reduction of barriers, such as tariffs and quotas, that countries impose on each other’s goods and services. This concept supports the idea that each country benefits economically by focusing on producing goods where they have a competitive advantage.
How Important is EFTA?
Despite a combined population of less than 14 million, EFTA is a significant force in global trade, ranking as the tenth-largest trader in merchandise and the eighth-largest in trade in services as of 2021. Its small size belies its considerable influence in international commerce.
How Many Free Trade Agreements Does EFTA Have?
EFTA boasts one of the world’s most extensive networks of free trade agreements, covering more than 60 countries and territories outside the EU. This network includes 30 agreements with 41 countries and territories, enhancing EFTA’s role in global trade.
What is EFTA’s History?
Founded by seven countries in 1960, EFTA saw Iceland and Liechtenstein join later. Over time, several members left to join the EU, reflecting the evolving landscape of European economic alliances. Today, EFTA stands as a testament to the enduring value of economic cooperation and free trade.
What is TEPA and Its relevance to India?
The India-EFTA Trade and Economic Partnership Agreement (TEPA) is a special deal that India made with four European countries: Switzerland, Norway, Iceland, and Liechtenstein, which are part of a group called the European Free Trade Association (EFTA). This deal is really important because it’s the first time India has made such an agreement with European countries, showing that India wants to do more business with countries in the west.
What’s special about this deal?
“Well, it shows that India is open to trading more with other countries, even when many countries are trying to protect their own businesses by not trading as much with other countries. For the EFTA countries, this deal is great because it lets them sell their products in India without facing high charges that usually make products more expensive. This is a big deal because India is a huge market with lots of people who might want to buy their products.This quick finish came right after India also made trade deals with Australia and the UAE. Plus, India is talking about making similar deals with the U.K. and the European Union, which means India is working hard to trade more with countries around the world.”
Source – Ministry of Trade and commerce, GOI
Importance of India -EFTA TEPA deal –
Economic Implications for Both Regions
The India-EFTA Trade and Economic Partnership Agreement (TEPA) is set to bring big changes in how India and the EFTA countries—Switzerland, Norway, Iceland, and Liechtenstein—do business with each other. Here’s what it means economically:
More Investment: EFTA promises to invest USD 100 billion in India. This isn’t just any money; it’s specifically for long-term projects that help grow India’s economy and strengthen ties between these countries.
Lower Tariffs: Both sides agreed to reduce or remove charges on many products. For India, 92.2% of its products (like medicines, textiles, and electronics) will have easier access to EFTA countries. EFTA is lowering tariffs on 82.7% of its exports to India, which includes important items like gold.
Services Sector Growth: The deal also includes agreements in services like IT and education, making it easier for people to work and offer services in each country.
Overall, TEPA is designed to make trading between India and EFTA smoother, with fewer taxes on goods and more opportunities for services and investments.
Strategic Benefits in Terms of Global Influence and Geopolitical Stability
Diversifying Trade: Both India and EFTA are looking to trade with a wider range of countries. For India, this agreement is a step away from relying too much on China for trade. It’s about making new trade friends in Europe.
More Investments and Jobs: With big investors like the Norwegian Sovereign Wealth Fund getting involved, this deal is expected to bring more money into India. This is not just good for business; it’s also expected to create lots of new jobs.
Buying and Selling More Diversely: The agreement is a chance for India and EFTA countries to buy and sell a bigger variety of goods. For example, it can help India get medical supplies and technology from EFTA without depending too much on China.
This trade deal between India and the EFTA countries is a big deal because it helps both sides economically, makes them more influential globally, and contributes to a more stable and diverse international trade environment.
Win- Win analysis –
Win-Win Deal Analysis of the India-EFTA Trade and Economic Partnership Agreement (TEPA)
The India-EFTA Trade and Economic Partnership Agreement (TEPA) crystallises a landmark in international trade agreements, fostering an expansive win-win scenario for India and the European Free Trade Association (EFTA) countries – Switzerland, Norway, Iceland, and Liechtenstein. This analysis delves into how TEPA stands to benefit both India and EFTA through market access, economic growth, technological transfer, and the bolstering of strategic ties.
Benefits to India
Investment and Economic Growth: At the heart of TEPA lies a commitment from EFTA countries to direct a staggering $100 billion investment into India, aiming to generate one million jobs over 15 years. This bold initiative is designed not just as an infusion of funds but as a catalyst for sustained economic growth and deepening long-term economic partnerships. The agreement uniquely positions India to recalibrate its tariff concessions if these investment expectations are not met, ensuring a balanced approach to economic cooperation.
Market Access and Trade in Goods: The agreement significantly enhances India’s market access to EFTA countries. Through careful tariff rationalisation, India commits to eliminating tariffs on a wide array of products over seven to ten years, enriching EFTA’s market access to India. This encompasses a spectrum of goods from seafood and pharmaceuticals to high-tech machinery and textiles, promising a diversification of India’s trade portfolio and fostering economic growth.
Technological Transfer and Trade in Services: TEPA paves the way for technological transfer and liberalisation in the services sector, promising enhanced access for Indian professionals and service suppliers to the EFTA market. Notable are the commitments from Norway and Switzerland allowing for the mobility of highly skilled Indian professionals, fostering an exchange of expertise and bolstering India’s service exports.
Benefits to EFTA
Access to a Vast Market: For EFTA countries, TEPA provides a golden key to one of the world’s largest and fastest-growing markets. The agreement mitigates India’s high tariff walls, allowing EFTA exports to tap into diverse sectors of the Indian economy. This strategic market access is anticipated to significantly benefit EFTA’s exports ranging from agricultural products to high-value industrial goods.
Investment Opportunities: The robust investment target set by TEPA not only promises economic dividends for India but also opens up a wealth of investment opportunities for EFTA countries. With India’s dynamic economy as a backdrop, EFTA’s investments are poised to yield high returns, further incentivized by the structured investment promotion and cooperation chapter within TEPA.
Strengthening Ties with a Key Strategic Partner: Beyond the immediate economic benefits, TEPA represents a deepening of strategic ties between EFTA countries and India. Aligning with the “China Plus One” strategy, it reflects a mutual interest in diversifying trade and investment partnerships. This strategic realignment not only enhances EFTA’s geopolitical stability but also positions India as a pivotal partner in the evolving global economic landscape.
In conclusion, the India-EFTA TEPA embodies a comprehensive framework for economic engagement, investment, and trade liberalisation. It heralds a new era of economic cooperation, promising substantial benefits for both India and EFTA countries by leveraging their complementary strengths. Through this partnership, TEPA sets a precedent for future trade agreements, highlighting the potential of collaborative economic growth and sustainable development in the global economy.
#TradeAgreement | India and European Free Trade Association (EFTA) States take a significant stride forward in their quest for a Trade and Economic Partnership Agreement (TEPA)@DoC_GoI pic.twitter.com/YokCS3J1Fp
— DD News (@DDNewslive) May 15, 2023
Future and Way Ahead for the India-EFTA TEPA Deal: An In-depth Analysis
The India-EFTA Trade and Economic Partnership Agreement (TEPA), a significant milestone in international trade relations, is poised to redefine the economic landscape for India and the EFTA countries—Switzerland, Norway, Iceland, and Liechtenstein. However, the path to realisation is strewn with challenges that demand strategic solutions. Here, we delve into the potential hurdles, strategic responses, and the far-reaching implications of this pivotal agreement, integrating critical data points for a comprehensive understanding.
Navigating Implementation Challenges
Economic Asymmetries: The stark disparity in per capita incomes—India at USD 2,500 compared to EFTA countries at USD 60,000-70,000—underscores the necessity for a framework that promotes equitable development. Addressing this requires nuanced strategies like investment protection to ensure a favourable climate for EFTA’s promised USD 100 billion investment, aimed at catalysing India’s economic growth and job creation.
Trade Deficits Concerns: India’s trade deficit with EFTA, marked by a substantial gap (exports at USD 1.92 billion versus imports at USD 16.74 billion during 2022-23), primarily due to gold imports from Switzerland, highlights the need for careful tariff management. The agreement allows India the flexibility to re-balance or suspend duty concessions if EFTA’s investment commitments do not materialise, offering a protective measure against potential economic imbalances.
Data Exclusivity and Non-Tariff Barriers: The inclusion of data exclusivity provisions could hinder the timely availability of generic medications, posing significant public health challenges. Concurrently, the reduction of non-tariff barriers through mutual recognition agreements and streamlined regulations promises to ease market access, fostering a conducive environment for bilateral trade.
Strategic Implications and Global Trade Dynamics
Global Supply Chain Integration: TEPA marks India’s strategic diversification of its trade partnerships, enhancing its role in global supply chains. This move, particularly amidst a global shift towards economic nationalism and a backlash against globalisation, signifies India’s growing economic influence and its potential as a counterbalance in global trade dynamics.
Promoting Multipolarity: The partnership aligns with the global trend towards a multipolar world order, with both regions advocating for diversified trade relations to mitigate reliance on a single major economy. This strategic alignment, coupled with India’s exclusion of sensitive sectors like agriculture and dairy from significant tariff reductions, aims to preserve domestic interests while fostering international cooperation.
Way Forward: Ensuring Success
Equitable Growth and Regulatory Harmony: Achieving the TEPA’s lofty goals requires addressing asymmetries through targeted investment protections and phased tariff reductions. Streamlining non-tariff barriers and enhancing dispute resolution mechanisms will be crucial for smoothing trade flows and ensuring equitable benefits.
Collaborative Efforts:
Sustained dialogue and cooperation between India and EFTA are imperative for navigating challenges and leveraging the agreement’s full potential. Joint technical committees and stakeholder engagements will play a vital role in harmonising standards and addressing sector-specific concerns.
Conclusion
The India-EFTA TEPA deal, while promising, confronts challenges that necessitate thoughtful strategies and collaborative efforts. By addressing economic disparities, managing trade deficits, and harmonising regulatory standards, India and the EFTA countries can unlock the full potential of this landmark agreement. As they navigate these complexities, the TEPA stands as a testament to the power of international cooperation in fostering a more interconnected and equitable global economy.
