Trade and Economic Partnership Agreement: What it Means for European & Indian Businesses?

India and the European Free Trade Association (EFTA) finalized the landmark Trade and Economic Partnership Agreement (TEPA) on March 10th, 2024.

India has been working on signing a Trade and Economic Partnership Agreement (TEPA) with EFTA countries, namely Switzerland, Iceland, Norway and Liechtenstein, under the guidance of the Hon’ble Prime Minister, Mr. Narendra Modi, the Union Cabinet approved signing the same with EFTA States under this agreement. 

Established in 1960, EFTA is an intergovernmental organization dedicated to promoting free trade and economic cooperation among its four member states.

On the announcement, Shri Piyush Goyal, Minister of Commerce, Industries, Food, Consumer Affairs and Textiles, said: “TEPA is a modern and ambitious Trade Agreement. India is signing an FTA (Free Trade Agreement) with four developed nations for the first time – an important economic bloc in Europe. For the first time in the history of FTAs, the binding commitment of $100 bn investment and 1 million direct jobs in the next 15 years has been given. The agreement will boost Make in India and provide opportunities to a young & talented workforce. The FTA will allow Indian exporters to access large European and global markets.“

The full treaty covers 14 chapters, with emphasis laid on market access for goods, rules of origin, trade facilitation, trade remedies, sanitary and phytosanitary measures, technical barriers to trade, investment promotion, services market access, intellectual property rights, trade and sustainable development, and other legal and procedural provisions.

The Highlights of the Agreement (TEPA):

EFTA has committed to increase investments aimed at increasing India’s FDI stock by $100 billion over the next 15 years. Along with that, it aims to facilitate the creation of 1 million direct jobs in India through those funds on this closure. Notably, these investments do not include foreign bank accounts. For the first time in the history of free trade agreements, there is a legal commitment to encourage value-based investment and employment.

EFTA’s market access proposal covers 92.2% of its tariff line, covering 99.6% of India’s exports. In particular, it extends the 100% concessional tax rate to non-agricultural goods and processed agricultural products (PAP). Meanwhile, India contributes 82.7% of its tariff schedule, accounting for 95.3% of EFTA exports, with sensitivities in areas such as pharmaceuticals, medical devices, and processed foods. A few sectors, such as dairy, soy, coal, and sensitive agricultural products, are excluded from the agreement.

India has submitted 105 sub-sectors to EFTA and received commitments in 128 sub-sectors from Switzerland, 114 from Norway, 107 from Liechtenstein, and 110 from Iceland. TEPA is expected to support India’s services exports, mostly in sectors such as IT services, business services, personal, cultural, sporting, recreational services, and others.

EFTA service delivery includes access to growth through the provision of digital services (Mode 1), employee presence (Mode 3), and increased commitment to access and temporary accommodation for key workers (Mode 4). In addition, TEPA includes provisions for mutual recognition agreements in professional services such as nursing, certified accounting and construction services.

The intellectual property rights guarantees in TEPA are consistent with TRIPS standards. Notably, the IPR chapter of Switzerland, which is known for its high standards in IPR, highlights the robustness of India’s IPR regime, addressing concerns related to generic medicines and patent evergreening.

TEPA emphasizes sustainable development, inclusive growth, social progress, and environmental protection. It aims to provide transparency, efficiency, simplicity, coordination, and stability of trade procedures, provides exporters with specialized investment opportunities, and facilitates trade, and favorable economic conditions have emerged. TEPA also provides opportunities for Indian companies to participate in EU markets, benefiting from exports of important Swiss industries to the EU.

In addition, TEPA is envisaged to promote “Make in India” and Self-Reliant India initiatives by encouraging domestic manufacturing in sectors such as infrastructure, telecommunications, construction, machinery, pharmaceuticals, chemicals, food manufacturing, transportation and logistics, banking, and financial services. Over the next 15 years, it is expected to accelerate the creation of more direct jobs for India’s young and aspiring entrepreneurs while facilitating technological integration and access to leading-edge technologies, precision, health sciences, renewable energy, innovation, and R&D. 

Free Trade Agreements (FTAs) play an important role in shaping international trade dynamics. For businesses, these contracts offer a wide range of benefits, from increased market access to cost savings and increased export opportunities. Similarly, Indian businessmen have multiple ways to benefit from such a pact. With the scope for earning better profits, things are going to get better by the day. 

1. Expanded market:

One of the most important benefits of FTAs ​​for traders is market expansion. By eliminating or reducing tariffs and other trade barriers, FTAs ​​enable companies to quickly access new markets. For example, a manufacturer based in India can now export its products to Switzerland without facing withholding taxes, opening up new opportunities for growth and expansion. 

2. Cost savings and efficiency:

FTAs also provide traders with discounts by reducing production costs. Eliminating tariffs allows companies to import raw materials and other components at lower costs. Thereby reducing the cost of production. In addition, streamlined customs procedures and reduced bureaucratic barriers under free trade laws help increase operational efficiency, allowing businesses to focus on core activities rather than having to go through complex rules and regulations. 

3. Better Export Opportunities

Traders stand to benefit from increased export opportunities facilitated by FTAs. By giving partner countries preferential access, these agreements allow companies to enter foreign markets more effectively. As a result, exporters can take advantage of new demand and diversify their customer base, ultimately leading to revenue growth and profitability.

4. Facilitation of Foreign Investment

FTAs create favorable conditions for foreign investment, which can be very beneficial for businesses. Provisions for investment protection and dispute resolution build investor confidence, encourage cross-border investment, and create joint ventures. This flow of foreign capital not only stimulates but also provides for economic growth, innovation, and knowledge transfer. 

5. Promotion of Innovation and Technology Transfer

In addition to facilitating trade and investment, FTAs ​​encourage innovation and technology transfer between sectors. Through collaboration and knowledge sharing, businesses in partner countries can leverage each other’s expertise and resources to drive innovation and compete in the global marketplace. In addition, intellectual property rights provisions in FTAs ​​protect innovation and encourage industry to invest in research and development.

6. Optimization of Supply Chains:

FTAs encourage supply chain integration through the easy movement of goods and services across borders. By leveraging the benefits of free cash flow, companies can improve the quality of their supply chains, reduce costs, and improve overall efficiency. By sourcing products from different countries at competitive prices, companies can create flexible and robust supply chains that are well-equipped to withstand crises. 

A Case Study Highlighting the Benefits of FTA (Free Trade Agreement):

Here is an excerpt from a case study that focused on South Korea’s Economic Transformation through Free Trade Agreements

Background:

A country heavily dependent on exports, South Korea began extensive trade liberalization efforts in the late 20th century to boost its economy and gain access to foreign markets. The main focus of the activity was the Korea – U.S. Free Trade Agreement (KORUS FTA) signed in 2007, followed by several other FTAs ​​with major trading partners such as the European Union (EU) and China.

How did the FTAs benefit South Korea?

1. Exports Surge:

The implementation of trade agreements greatly expanded South Korea’s export opportunities, removing or reducing tariffs on a wide range of goods and services. It resulted in driving South Korean exporters with access to attractive markets, increasing export volumes. For example, under the KORUS FTA, South Korea’s exports to the United States increased by more than 40% within a few years of implementation, covering a range of sectors including automotive, electronics and consumer goods. 

2. Economic Growth and Competitiveness:

The proliferation of trade agreements has strengthened South Korea’s economic growth trajectory and increased its global competitiveness. By exploiting new markets and diversifying export destinations, South Korea reduced its reliance on any one market. It has thus led to reducing the risks associated with economic fluctuations in specific sectors. Apart from that, the increasing export competitiveness stimulated innovation and productivity improvements in various industries has led to overall economic prosperity.

3. Attraction of Foreign Investment:

FTAs played an important role in attracting foreign investment to South Korea, further boosting its economic growth. The improved market conditions and investment protection provisions provided by FTAs ​​gave foreign investors confidence. It also encouraged them to set up operations or expand existing ones in South Korea. Consequently, South Korea found a large influx of foreign direct investment, especially in manufacturing, technology and services. It contributed to job creation and knowledge transfer. 

4. Strengthened Bilateral Relations:

Beyond the economic benefits, FTAs ​​have catalyzed strengthening bilateral relations between South Korea and its trading partners. Through diplomacy and mutual concessions, FTAs ​​fostered closer ties and cooperation. The areas go beyond trade, including political, cultural and security aspects. Deepening bilateral ties not only enhanced South Korea’s geopolitical position but also facilitated cooperation on regional and global issues of mutual interest.

South Korea’s experience highlights the transformative impact of free trade agreements in multiple areas. National economies, highlighting their potential for faster growth, improved competitiveness and better international relations is noticed. By taking advantage of the opportunities offered by FTAs, South Korea has emerged as a dynamic global player, driving innovation, prosperity and sustainable development.

Read More:

• The Critical Role of FTA (Free Trade Agreements) in Global Economy
• Free Trade Agreements – An Indian Perspective
• NAFTA: North America Free Trade Agreements And Its Benefits in Global Market
• Australian Parliament Passes Free Trade Agreement With India(Opens in a new browser tab)
• UAE & Israel Signed a New FTA: An Overview