India’s $100 billion trade deal with the 4-nation European Free Trade Association (EFTA)
15-03-2024
The Indian government has finalized a series of major trade agreements over the past few years, and a deal with the United Kingdom (UK) is currently in the pipeline. Also, the European Union (EU) is negotiating its own trade deal with India. Hence, the signing on 10 March of a trade deal between New Delhi and the European Free Trade Association (EFTA) nations comprising Switzerland, Iceland, Norway and Liechtenstein was a continuation of that trend. In his comments lauding the signing of the trade deal with the EFTA, Indian Prime Minister Narendra Modi underlined India’s commitment to boosting economic progress and creating opportunities for the country’s youth. The positive effect that such commitment, sustained over the past several decades, has yielded for India’s people was highlighted by the United Nations (UN) this week when it commended the “remarkable progress in human development” the country had achieved since the 1990s. India expects the trade agreement with the EFTA to generate $100 billion worth of investment over 15 years and create 1 million jobs in the world’s fifth-largest economy.
The conclusion of the trade deal was a long awaited development both for India and the EFTA, which is an inter-governmental organization set up in 1960 for the promotion of free trade and economic integration for the benefit of its four Member States. India is the EFTA’s fifth-largest trading partner after the EU, the United States (US), the UK and China, with total two-way trade of $25 billion in 2023, as per Ministry of Trade estimates. Among EFTA countries, Switzerland is India’s largest trading partner, followed by Norway. The agreement comes after almost 16 years of effort and 21 rounds of negotiations on a Trade and Economic Partnership Agreement (TEPA). It comprises of 14 chapters with the main focus being on market access related to goods, rules of origin, trade facilitation, trade remedies, sanitary and phytosanitary measures, technical barriers to trade, investment promotion, market access on services, intellectual property rights, trade and sustainable development and other legal and horizontal provisions. India and the four EFTA States will now have to ratify the agreement before it can take effect. Switzerland is expected to ratify it by next year.
Following the signing of the agreement, India’s Ministry of Commerce & Industry enumerated its highlights in a statement issued on 10 March. It said that “EFTA has committed to promote investments with the aim to increase the stock of foreign direct investments by USD 100 billion in India in the next 15 years, and to facilitate the generation of 1 million direct employment in India, through such investments. The investments do not cover foreign portfolio investment. For the first ever time in the history of FTAs, a legal commitment is being made about promoting target-oriented investment and creation of jobs”. The investments are expected to be made across a range of industries, including pharmaceuticals, machinery and manufacturing.
The Indian statement added that “TEPA will give impetus to ‘Make in India’ and Atmanirbhar Bharat (Self-reliant India) by encouraging domestic manufacturing in sectors such as Infrastructure and Connectivity, Manufacturing, Machinery, Pharmaceuticals, Chemicals, Food Processing, Transport and Logistics, Banking and Financial Services and Insurance. TEPA would accelerate creation of large number of direct jobs for India’s young aspirational workforce in next 15 years in India, including better facilities for vocational and technical training. TEPA also facilitates technology collaboration and access to world leading technologies in precision engineering, health sciences, renewable energy, Innovation and R&D”.
On what was covered under the TEPA, the Ministry of Commerce & Industry said that “EFTA is offering 92.2% of its tariff lines 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 (PAP). India is offering 82.7% of its tariff lines which covers 95.3% of EFTA exports of which more than 80% import is Gold. The effective duty on Gold remains untouched. Sensitivity related to PLI in sectors such as pharma, medical devices & processed food etc. have been taken while extending offers. Sectors such as dairy, soya, coal and sensitive agricultural products are kept in exclusion list”.
The Indian Ministry continued that “TEPA would stimulate our services exports in sectors of our key strength/interest such as IT services, business services, personal, cultural, sporting and recreational services, other education services, audio-visual services etc. Services offers from EFTA include better access through digital delivery of Services (Mode 1), commercial presence (Mode 3) and improved commitments and certainty for entry and temporary stay of key personnel (Mode 4). TEPA has provisions for Mutual Recognition Agreements in Professional Services like nursing, chartered accountants, architects etc”.
Importantly, the Indian statement noted that “TEPA provides an opportunity to integrate into EU markets. Over 40% of Switzerland’s global services exports are to the EU. Indian companies can look to Switzerland as a base for extending its market reach to EU”. Also, “TEPA will empower our exporters access to specialized inputs and create conducive trade and investment environment. This would boost exports of Indian made goods as well as provide opportunities for services sector to access more markets”.
Speaking at the signing, India’s Commerce and Industry Minister Piyush Goyal commented that “TEPA is a modern and ambitious Trade Agreement. For the first time, India is signing FTA with four developed nations - an important economic bloc in Europe. For the first time in history of FTAs, binding commitment of $100 bn investment and 1 million direct jobs in the next 15 years has been given. The agreement will give a boost to Make in India and provide opportunities to young & talented workforce. The FTA will provide a window to Indian exporters to access large European and global markets”. Alluding to some new elements in the pact such as intellectual rights and gender equality, Goyal added at a related press conference that “It is a modern trade agreement: fair, equitable, and win-win for all five countries”.
Prime Minister Modi called the TEPA “one of the most pioneering free trade agreements ever”. He said further on X that he was “Delighted by the signing of the India-EFTA Trade & Economic Partnership Agreement. This landmark pact underlines our commitment to boosting economic progress and create opportunities for our youth. The times ahead will bring more prosperity and mutual growth as we strengthen our bonds with EFTA nations”. Modi added that the signing “marked a new turn and watershed moment in the bilateral relationship between India and (European Free Trade Association) countries of Switzerland, Iceland, Norway and Liechtenstein”.
The EFTA, in its own statement on 10 March, informed that Guy Parmelin, Swiss Federal Councillor and Head of the Federal Department of Economic Affairs, Education and Research; Bjarni Benediktsson, Minister of Foreign Affairs, Iceland; Dominique Hasler, Minister of Foreign Affairs, Liechtenstein; and Jan Christian Vestre, Minister of Trade and Industry, Norway, had signed the TEPA agreement with Goyal. The EFTA asserted that “The landmark agreement between India and EFTA is set to bring significant economic benefits, such as better integrated and more resilient supply chains, new opportunities for businesses and individuals on both sides leading to increased trade and investment flows, job creation, and economic growth”. It further stressed that “The signature of this agreement marks a significant milestone in the relationships between the EFTA States and India. It reflects the culmination of dedicated efforts to foster a deeper economic partnership, underscoring the importance of dialogue, cooperation, and mutual understanding”.
Underlining that the agreement enhances market access and simplifies customs procedures making it easier for Indian and EFTA businesses to expand their operations in their respective markets, the statement added that the TEPA further aims to facilitate and promote investment opportunities between the signatories. The EFTA statement added that at the signing ceremony, Swiss Federal Councillor Guy Parmelin, speaking on behalf of the EFTA Member States, had asserted that “EFTA countries gain market access to a major growth market. Our companies strive to diversify their supply chains while rendering them more resilient. India, in return, will attract more foreign investment from EFTA, which will ultimately translate into an increase in good jobs… All in all, the TEPA will allow us to make better use of our economic potential and create additional opportunities for both India and the EFTA States”.
While lamenting the slow progress in negotiations for the India-UK trade deal, the UK-based Independent pointed out that the TEPA agreement will provide advantages to the pharmaceutical and medical devices sector within the EFTA bloc. Indian exporters will enjoy expanded access for their rice and other goods to European nations, while high-end Swiss watches will gradually become more affordable in India. Swiss machinery manufacturers, producers of luxury goods, and transport sectors are anticipated to gain, according to the Swiss government. India has extended an invitation to Swiss transport companies to invest in its railways. Also, the agreement gives EFTA nations the chance to export processed food and beverages, electrical machinery, and various engineering products to a potential market of 1.4 billion people at reduced tariffs.
On his return home, Swiss Economics Minister Guy Parmelin declared that the TEPA pact would give Swiss firms a “competitive edge” for many years, and that eliminating customs duties would generate around CHF170 million a year in additional exports. He added, “It’s historic. India was perhaps the missing element in our network of free trade agreements. It enables us to diversify”. Similarly, Norwegian Industry Minister Jan Christian Vestre pointed out in a separate statement that “Norwegian companies exporting to India today meet high import taxes of up to 40% on certain goods. With the new deal, we have secured nil import taxes on nearly every Norwegian good”.
Martin Hirzel, president of Swissmem, the umbrella organization for the Swiss mechanical and electrical engineering sectors, called the signing of the agreement a “game-changer” that came at the right time ahead of a possible India-EU free trade deal. Hirzel explained on Swiss public television SRF that “We now have an overpriced Swiss franc that represents a huge challenge for firms. We are experiencing an industrial recession and the number of new orders is declining. Now we have a 20% remission of customs duties in India. We’ve become competitive again overnight”.
As the Indian daily The Hindu observed in an editorial on 14 March, the speed with which India sealed the EFTA deal within months of resuming negotiations on it was creditable. The agreement constituted India’s second major trade pact in recent years since the trade deal with the United Arab Emirates (UAE), and the first such arrangement with a Western nations’ grouping. It continued, “A country that has often been criticised for its high import tariffs and protectionist approach, now seems willing and able to walk the talk on free trade when many nations are turning protectionist. The EFTA pact, expected to be ratified by the end of 2024, also marks the first time that India has agreed to include non-trade issues such as labour, human rights, environment and gender in an economic agreement”. For India, the editorial noted, the lynchpin in the TEPA agreement was “the in-built goal to nudge $100 billion of fresh foreign direct investment into India and create a million jobs over 15 years”.
Michael Kugelman, director of the South Asia Institute at the Wilson Center, believes that “The EFTA deal is a logical move for India, which is increasingly engaged in the global economy, scaling up ties with Western countries that embrace free trade, and reliant on global imports ranging from fuel to weapons”.
The appeal of India’s fast-growing economy and the prospect of it becoming an alternative to China for global supply chains means that interest in concluding trade agreements with New Delhi is only going to increase in coming times, a situation that should eventually benefit the 1.4 billion people of India.
