India-UAE Comprehensive Economic Partnership Agreement (CEPA)

Q. Why in News/Context?

·   India-UAE Comprehensive Economic Partnership Agreement (CEPA) completed one year of implementation.

Q. What is CEPA?

·      A comprehensive economic partnership agreement (CEPA) is a free trade agreement between two countries

Q. What are advantages and benefits of India-UAE CEPA?

The India-UAE CEPA entered into force on May 1, 2022. As a result of the agreement, businesses can now take advantage of many new benefits, including:

     1.   Greater access for UAE exports entering the Indian market through the reduction or
     removal of tariffs on more than 80 per cent of products and vice-versa.

     2.   An open and non-discriminatory environment for cross-border trade with India.

     3.   Enhanced market access for  service providers across many sectors and sub-sectors.

     4.   The removal of unnecessary technical barriers (TBT) for UAE and Indian exporters.

     5.   The use of international standards as a basis for technical regulations.

     6.   Enhanced access for businesses to government procurement opportunities.

     7. Assurance that products will not be subject to anti-dumping investigations as such
    products are merely transshipped.

     8.  A Joint Committee to assess, revise and propose amendments to the CEPA, including
    improving market access.

Q. Why is this trade agreement significant?

·   India and the UAE have signed a Comprehensive Economic Partnership Agreement (CEPA) with the aim of increasing bilateral merchandise trade to $100 billion by 2030.

·  The India-UAE CEPA marks the first trade agreement India has made with a major trading partner in over a decade. The last major FTA India signed was with Japan in 2011.

·   India is also pursuing FTAs with Australia, UK, Canada, Israel and the EU. Commerce minister PiyushGoyal also said that India could conclude an FTA with the Gulf Cooperation Council (GCC) group of countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE) by the end of the year.

Q. How will the agreement boost bilateral trade?

·     Under the agreement, the UAE is set to eliminate duties on 80 per cent of its tariff lines which account for 90 per cent of India’s exports to the UAE by value. This is particularly important for exports in highly competitive areas such as textiles and garments where India exporters have thus far been facing a competitive disadvantage in import tariffs.

·  This will include leather, processed agriculture and dairy products, handicrafts, gems and jewellery, furniture, pharmaceuticals, food and beverages, engineering products and nearly the entire spectrum of items produced by the Indian economy. Apart from the goods sector, it will also include the services sector. Indian officials said that they expect the services sector to boom by $15 billion in the coming five years.

·     Currently Indian textile and leather exports face a 5 per cent duty in the UAE while the products of competitors in Vietnam and Bangladesh have zero duty access. The zero duty access for Indian products to the UAE is set to expand over 5-10 years to 97 per cent of UAE tariff lines corresponding to 99 per cent of India’s exports by value.

Q. How will the trade pact benefit India-UAE economic ties?

·   India-UAE economic ties are marked by the flow of remittances from the oil rich Gulf country to India. The country hosts at least 3 million Indians who work in diverse sectors of the economy of the Emirates and provides it with vital manpower support at all levels.

·  According to a study, 82% of India’s total remittances originated from seven countries that included Gulf countries like the UAE, Saudi Arabia, Oman and Kuwait. In 2019, India received $83 billion from the Gulf region. The figure was marginally affected in 2020 when large number of Indian workers returned home because of pandemic related economic distress.

·   The India-UAE economic relation at present is shaped by the remittances that remain much greater than the $60 billion bilateral trade. The remittances are expected to rise with full economic recovery of the UAE’s post-pandemic economy.

·   The FTA will also increase remittances as Indian investments in UAE will bring Indian employees into the Gulf country.

Q. Why did PM Modi refer to the western Quad?

·     The western Quad consisting of Israel, India, UAE and the United Stateshas been a regional factor ever since it was convened last October which was followed by a ministerial meeting of the four countries. The western quad is marked by the diplomatic breakthroughs between Israel and the United Arab Emirates which hosted Israeli Prime Minister Naftali Bennett. It is understood that UAE as part of its post pandemic recovery plans is planning to revitalise its trade links with the region from the Mediterranean coast to Turkey on one hand and India and South Asia on the other.

·     USA and the UAE are among the biggest trading partners of India, and Israel is among the top technology support providers for India. All four are connected by currents of security and trade.

Q. What is the progress in past one year?

·     During the past one year, CEPA has made a significant impact on India’s Bilateral Trade with the UAE and particularly India’s Exports to the UAE (Oil and Non-Oil). The Bilateral Trade between India and the UAE has touched historic highs during FY 2022-23. Trade has increased from US$ 72.9 billion (Apr 21-Mar 2022) to US$ 84.5 billion (Apr 22-Mar 2023) registering a year-on-year increase of 16%.

·  Exports from India to the UAE have also registered a multiyear high. During the CEPA Implementation period (May 22 – March 23), India’s exports to the UAE increased from 26.2 billion (May 21 – March 22) to 28.5 billion (May 22 – March 23); an 8.5% y-o-y growth.

·    Some of the key sectors, including labour-intensive sectors, that have witnessed significant export growth on account of the CEPA include: Mineral Fuels; Electrical Machinery (particularly telephone equipment); Gems &Jewellery; Automobiles (Transport vehicles segment); Essential Oils/Perfumes/Cosmetics (Beauty/Skin care products); Other Machinery; Cereals (Rice); Coffee/Tea/Spices; Other Agri Products; and Chemical Products

·    Given the significant increase in bilateral trade, particularly in exports of Indian goods and services, CEPA would have had a concomitant positive impact on other key macroeconomic variables such as GDP and Employment