India-UAE CEPA: significance and gains

Introduction
Objectives
Current trade with Unites Arab Emirates
Key features and benefits
Benefits for India
Comment

Introduction

After recently singing a free trade agreement with the United Kingdom, an Economic Cooperation and Trade Agreement with Australia, and previously comprehensive economic partnership agreements (CEPAs) with Japan and South Korea in 2009 and 2011 respectively, India has now signed the first comprehensive agreement of this decade with the United Arab Emirates. This new CEPA is India's first free trade agreement and comprehensive agreement with any Gulf Cooperation Council (GCC) country, and also the fastest agreement concluded, in merely 88 days. The agreement was signed on 18 February 2022 and is expected to come into force on 1 May 2022.

Under this agreement, India's positive list of offers to the Unites Arab Emirates covers about 90% of India's tariff lines, while the Unites Arab Emirates' list of offers to India covers about 97% of the Unites Arab Emirates' tariff lines. This means that the Unites Arab Emirates will have access to 90% of India's tariff lines at preferential import duties, while India will have access to 97% of the United Arab Emirates' tariff lines at preferential import duties.

This agreement will bolster the trade of a large number of goods from sectors such as:

• textiles;
• agriculture;
• dry fruits;
• gems; and
• jewellery.

Through this agreement, India aims to boost bilateral trade with the Unites Arab Emirates in the next five years, with a view to reach profits of $100 billion.

Objectives

More precisely, the objectives that India wants to meet through this CEPA are:

• strengthening and enhancing trade and economic cooperation in the agreed fields;
• liberalising and facilitating trade in accordance with the provisions of the agreement;
• enhancing investment facilitation and cooperation in accordance with the provisions;
• improving the efficiency and competitiveness of the parties' manufacturing and services sector;
• expanding trade, including joint exploitation of commercial and economic opportunities with countries that are not part of the agreement;
• facilitating and enhancing regional economic cooperation and integration; and
• building upon commitments made to the World Trade Organization (WTO) by both India and the Unites Arab Emirates.

Current trade with Unites Arab Emirates

The estimated current bilateral trade in goods between India and the Unites Arab Emirates in 2021 is over $60 billion. The trade map table below – in billions of US dollars – provides the trade statistics of the last decade between both countries.

India's exports to the Unites Arab Emirates are well diversified. India's major export items to the Unites Arab Emirates are:

• light and medium petroleum oils;
• precious metals;
• precious stones;
• gems and jewellery;
• minerals;
• food, particularly cereals, sugar, fruits, vegetables, tea, meat and seafood;
• textiles, particularly garments, apparel, synthetic fibre, cotton and yarn;
• engineering and machinery products; and
• chemicals.

India's major import items from the Unites Arab Emirates are:

• petroleum and petroleum products;
• precious metal;
• precious stones;
• minerals; and
• chemicals.

Key features and benefits

The following are the CEPA's key features and benefits for India:

• This CEPA is a comprehensive agreement covering trade in:
  • goods;
  • rules of origin;
  • services;
  • technical barriers to trade (TBT);
  • sanitary and phytosanitary measures;
  • dispute settlement;
  • movement of natural persons;
  • telecoms;
  • customs procedures;
  • pharmaceutical products;
  • government procurement;
  • intellectual property;
  • investment;
  • digital trade; and
  • cooperation in other areas.
• The agreement aims to provide:
  • duty-free access to 7,694 goods from the day of implementation; and
  • a stringent but wide scope of rules of origin. It provides for product-specific rules of origin under Annex 3B to Chapter 3. The requirements vary from wholly obtained to 40% value addition on a free-on-board basis.
• The agreement includes a chapter dedicated to bilateral cooperation on pharmaceutical products. Both countries have agreed to grant mutual recognition to all such pharmaceutical products accepted by the pharmacopoeias of Australia, Canada, the European Union, Japan, the United States and the United Kingdom. The agreement also incorporates fast-track approval and acceptance of test results from accredited laboratories.
• For the first time in a CEPA agreement, India has added a dedicated chapter on government procurement. India is not a signatory to the WTO's Government Procurement Agreement, but it has been an observer since 2010. As per the agreement, only government procurement contracts worth over approximately $26,114,200 will be open to UAE-based companies on the same terms as Indian firms. This aims to protect the micro, small and medium enterprises (MSMEs) industry engaged in government procurement.
• The chapter on investment and trade, noting the existence of a bilateral investment treaty, aims to promote investment and trade cooperation. Interestingly, article 12.6 of the agreement provides for non-application of dispute settlement mechanisms.
• There is a dedicated chapter to promote cooperation to increase commercial opportunities for MSMEs. The agreement puts special emphasis on MSMEs owned by women and youth to facilitate participation in international trade. The chapter on MSMEs also provides for a non-application of dispute settlement mechanisms.
• The chapter on TBT provides wider authority to Indian and UAE governments to maintain, adopt or apply technical regulations, standards or conformity assessment procedures. Any issue arising concerning technical barriers to trade are subject to dispute settlement as per this agreement. However, in case of exclusive violation of the WTO's TBT agreement, the party will not have recourse to dispute settlement under this agreement. The chapter on TBT provides for mutual recognition of each other's technical regulation despite differences. In the event of non-acceptance, the other party shall also provide the reason for non-acceptance.
• The chapter on trade remedies provides the following:
  • Both countries retain their rights under the WTO agreement regarding anti- dumping and anti-subsidy investigations.
  • Barring exceptional cases, no anti-dumping or countervailing duties shall be imposed during the first year after a final determination regarding the goods covered under an investigation that ended with a negative final determination.
  • India or the United Arab Emirates are not be included as one of the subject countries in the event of mere trans-shipment;
  • There should be a prior notification before the initiation of anti-dumping or countervailing procedures, and the exporting party may request pre-initiation consultations.
  • There is a provision for bilateral safeguard measures. Tariff rate quotas or quantitative restrictions are not a permissible form of bilateral safeguards measures.

Benefits for India

• The United Arab Emirates' major imports come from China, the United States, Japan, Germany and India. However, India's share in the United Arab Emirates' total imports is lower than that from China and the United States. In the absence of a trade agreement between the United Arab Emirates and the United States or the United Arab Emirates and China, India will have an advantage over these countries in the UAE market.
• India is already in discussions with other GCC countries to explore an India-GCC free trade area agreement. India's CEPA with the United Arab Emirates will accelerate bilateral discussions between India and other GCC countries. This may result in a potential agreement with rest of the Middle East.
• The agreement shall provide better accessibility to the UAE market.
• The agreement covers almost all the tariff lines that India deals in (11,908 tariff lines) – for the United Arab Emirates this number is 7,581 tariff lines. India will benefit from preferential market access provided by the United Arab Emirates on over 97% of its tariff lines, which account for 99% of Indian exports to the United Arab Emirates in value terms, especially for all labour-intensive sectors, such as:
  • gems and jewellery;
  • textiles, leather, footwear and sports goods;
  • plastics;
  • furniture;
  • agricultural and wood products;
  • engineering products;
  • medical devices; and
  • automobiles.
• The agreement will potentially result in increased opportunities for several service sectors, such as:
  • computer-related services;
  • audiovisual;
  • health;
  • tourism;
  • travel;
  • nursing;
  • engineering; and
  • accountancy.

Comment

This new CEPA is expected to push bilateral trade to $100 billion in the next five years. The agreement has vast coverage in terms of cooperation between the two countries, including a free trade area. This will help India to utilise the Unites Arab Emirates' resources and do appropriate resource allocation within the free trade area.

At the same time, this agreement allows India to use its rights under the WTO in case of dumping or export of subsidised material causing injury. The CEPA also contains a provision of bilateral safeguards to check the surge of any non-essential imports in the Unites Arab Emirates.

For further information on this topic please contact Nihit Gupta or Ashutosh Kashyap at TPM Solicitors & Consultants by telephone (+91 11 4989 2200) or email ([email protected] or [email protected]). The TPM Solicitors & Consultants' website can be accessed at www.tpm.in.