The EFTA block is India’s fifth largest trading partner after the EU, China, US, and UK. Its member countries are not part of the EU. It is an intergovernmental organization meant to promote and intensify trade. It is neither a politically integrated bloc nor a customs union. They have one of the largest networks of free trade agreements (FTAs) spanning over 60 countries and territories. That reveals the growing importance of trade agreements for growth in international trade in a globalized world.
The present agreement between these four small countries of EFTA and India is likely to open the doors of economic cooperation, knowledge sharing and job creation both in India and EFTA countries provided they work collaboratively and resolve every obstacle that pops up in the way strategically and move forward with faith in each other to implement the accord effectively.
Theoretically speaking, a free trade agreement is a pact between two or more nations to reduce barriers to imports and exports among them. Under an FTA, goods and services can be bought and sold across international borders with little or no governmental tariffs, quotas, or subsidies. Free trade has indeed allowed many countries to attain rapid economic growth. It enables countries to capitalize on the principle of Ricardo’s ‘comparative advantage’ —focusing on producing such goods that a country can produce with cheap labour, and sell in the global market at a lower price and thereby garner the market.
For the first time ever in the history of FTAs, the EFTA member nations have committed to invest $100 bn excluding foreign portfolio investment and help create a million jobs in India over the coming 15 years. The investment flow is however predicated on India’s GDP growing at a nominal rate of 9.5% over 15 years. There is, of course, an option in the agreement that enables India to revoke its trade concessions if there is any shortfall in the proposed investment but only in proportion to the extent of the shortfall in the said investment. This again could be undertaken only after a review which could take about three years, which means such revocation is possible only after 18-20 years of the agreement coming into force. It has also offered 92.2% of its tariff which covers 99.6% of India’s exports. The EFTA’s market access offer covers 100% of non-agri products and tariff concession on processed agricultural products.
Now the question is: Whether India stand to gain market access, particularly to Switzerland? According to the Global Trade Research Initiative, 98% of India’s exports to Switzerland are industrial products and the duties on these products are now brought down to zero from the existing 1.3%. Thus, there appears to be no real gain. But the government hopes that the TEPA would stimulate our service exports in sectors where we are considered strong globally such as IT services, business services, personal, cultural, sporting and recreational services, audio-visual services, etc. Our IT companies such as TCS, Infosys and HCL already have their offices in EFTA countries but the free movement of IT professionals across these nations could only result in gains for India. Norway has, of course, said that there would be ‘no capping’ on the entry of Indian IT professionals, but there are no such explicit concessions in the agreement. In light of these realities, one has to wait and watch how the EFTA countries handle the entry of Indian professionals.
In return, India offered to lift or partially remove very high customs duties on 95.3% of industrial imports, of course, excluding gold, in a phased manner over varying periods. Sectors such as dairy, soya, coal and sensitive agricultural products are excluded from the said list. Nevertheless, the reduction in tariffs is likely to expand the trade deficit that stood at $18.6 with EFTA countries. That aside, there are already more than 300 Swiss companies such as Nestlé, Holcim, Novartis, Sulzer and banks such as UBS operating in India. Switzerland, which already has a trade surplus of over $12 bn with India could now increase its export of electrical machinery, engineering products, wine, watches, medical devices and pharmaceuticals to India.
Over it,
Switzerland, the largest partner in the EFTA, has a thriving FTA with China.
Recently, they have even upgraded their trade relationship. This posits a
challenge: Will Chinese goods find an easy way into India via Switzerland? Of
course, there are rules of origin in the agreement but one is not sure if they
cannot be circumvented as it happened under the ASEAN FTA route. Incidentally,
Switzerland is currently working towards resetting its ties with the EU. In
case it enters the EU by adopting the ‘Carbon Border Adjustment Mechanism’ and
other related conditions imposed by the EU, it may pose a new challenge to
India. A vigil over these challenges is likely to keep gains in good stead.
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