India-UAE and FTA

  • IASbaba
  • February 18, 2022
  • 0
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  • GS-2: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests

India-UAE and FTA

Context: India has embarked on a new journey — a new free trade agreement (FTA) journey to be precise — with renewed zeal and vigour.

  • India’s approach towards FTAs is now focusing more on gaining meaningful market access and facilitating Indian industry’s integration into global value chains.

India-UAE having same priorities

  • Under the revamped FTA strategy, the Government of India has prioritised at least six countries or regions to deal with, in which the United Arab Emirates (UAE) figures at the top of the list for an early harvest deal.
    • Others are the United Kingdom, the European Union, Australia, Canada, Israel and a group of countries in the Gulf Cooperation Council (GCC).
  • At the same time, the UAE too announced, in September 2021, its intent to pursue bilateral economic agreements with eight countries — India, the U.K., Turkey, South Korea, Ethiopia, Indonesia, Israel, and Kenya — with the goal of concluding these agreements within one year.

Opportunity in UAE

  • The UAE, due to its strategic location, has emerged as an important economic centre in the world.
  • In recent years, the UAE, through its ‘Vision 2021’, has sought to diversify its economy and reduce its dependency on oil.
  • Although the UAE has diversified its economy, ‘the hydrocarbon sector remains very important followed by services and manufacturing.
  • Within services, financial services, wholesale and retail trade, and real estate and business services are the main contributors’. 

Deepening of India-UAE relationship: Need for FTA

  • India and the UAE established diplomatic relations in 1972, which got greater push with the visit of the Prime Minister, Narendra Modi, to the UAE in August 2015 
  • Further, during the visit of the Crown Prince of Abu Dhabi, to India in January 2017 as the chief guest at India’s Republic Day celebrations, it was agreed that bilateral relations were to be upgraded to a comprehensive strategic partnership.
  • This gave momentum to launching negotiations for an India-UAE comprehensive economic partnership agreement, eventually launched in September 2021. 
  • The India-UAE total trade merchandise has been valued at U.S.$52.76 billion for the first nine months of the fiscal year 2021-22, making the UAE India’s third largest trading partner. 
  • The aim is to boost bilateral merchandise trade to above U.S.$100 billion and services trade to U.S.$15 billion in five years. 
  • India is aiming to achieve the U.S.$1 trillion of merchandise exports and U.S.$1 trillion of services exports by the year 2030. A trade agreement with the UAE could well be a springboard to realise these ambitious export targets. 
    • UAE would be an attractive export market for Indian electronics, automobiles, and other engineering products.
  • A trade agreement is also an enabler for two-way investment flows. The UAE’s investment in India is estimated to be around U.S.$11.67 billion. Likewise, many Indian companies have also invested in the manufacturing, textile, engineering products, tourism, hospitality, catering, health, retail, and education sectors. 
  • FTA with the UAE will pave the way for India to enter the UAE’s strategic location, and have relatively easy access to the Africa market and its various trade partners which can help India to become a part of that supply chain especially in handlooms, handicrafts, textiles and pharma. 

Challenges Ahead

  • The UAE tariff structure is bound with the GCC, and the applied average tariff rate is 5%. Therefore, the scope of addressing Non-Tariff Barriers (NTBs)- like Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade (TBT) – becomes very important. 
  • The SPS notifications are mainly related to live poultry, meat, and processed food. In addition, the UAE has 534 TBT notifications, mainly related to fish, food additives, meat, rubber, electrical machinery, etc. 
  • These compliances pose a challenge for Indian exporters. 
  • The FTA agreement must try to bring more transparency and predictability in the use of NTBs so that their compliance becomes less cumbersome. 

Connecting the dots:

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