New Delhi: India and the European Free Trade Association (EFTA) — comprising Liechtenstein, Iceland, Norway and Switzerland — signed a free trade agreement Sunday. The four EFTA countries will encourage the private sector to invest $100 billion in India over the next 15 years in exchange for the reduction of tariffs for their exports.
Prime Minister Narendra Modi hailed the agreement as a “watershed” moment for the bilateral relationship between India and the EFTA countries. The agreement will reduce tariffs on goods such as chocolates, machinery, and other industrial goods and services. However, the dairy and agricultural sectors are excluded from the agreement.
Apart from the objective of $100 billion in foreign direct investment in India, the agreement also looks at creating one million jobs in India as a result of the investment within the next 15 years.
Negotiations for a trade agreement, known as the Trade and Economic Partnership Agreement (TEPA), between India and the EFTA countries first started in 2008. It took 21 rounds of negotiations over nearly 16 years before the final agreement was signed by all parties.
The TEPA with the EFTA countries is the first free trade agreement between India and European countries.
However, the agreement will not come into force immediately. It must be ratified by all five countries — India, Liechtenstein, Iceland, Norway and Switzerland.
The agreement will come into force on the “first day of the third month” after all countries have deposited the instruments of ratification with the government of Norway. All parties to the TEPA agreed to Norway acting as the depositary in Article 14.8 of the agreement.
Meanwhile, Switzerland announced Sunday that it will begin the parliamentary approval process immediately, with the aim of ratifying the agreement by 2025 at the earliest.
Guy Parmelin, Swiss federal councillor and head of the Federal Department of Economic Affairs, during the signing ceremony, said, “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.”
Also Read: Trade talks with EFTA conclude after 17 years, agreement to be signed ‘in next 10 days’
Sectors involved in the agreement
According to a statement released by the government of Switzerland, the agreement will see India lifting or partially lifting customs tariffs on 95.3 percent of industrial imports from the country.
The one item that has been excluded from the agreement and will not see an effective tariff reduction is gold — India’s largest import from Switzerland.
The bound tariff rate for gold applied by India will see a drop by one percentage point from 40 percent to 39 percent, as reported by Nikkei Asia.
Gold accounts for the largest value of goods imported by India from the EFTA countries.
In the financial year 2022-23, India imported $12.6 billion worth of gold from Switzerland. The total trade value of goods between India and EFTA countries stood at $16.738 billion during the same period, according to the Ministry of Commerce and Industry.
In a separate statement, Jan Christian Vestre, the Norwegian industry minister, said, “Norwegian companies exporting to India today meet high import taxes of up to 40 percent on certain goods…With the new deal, we have secured nil import taxes on nearly every Norwegian good.”
Switzerland in 2022 decided to eliminate import duties on all industrial goods from every country, a decision that came into effect on 1 January.
A report by the Global Trade Research Initiative (GTRI), highlights that these cuts by Switzerland impact 98 percent of all Indian exports to the country.
The GTRI report says that, with these cuts already in place, regardless of the TEPA signed between India and the EFTA countries, it could mean limited utility in gains for Indian exporters to Switzerland.
What do tariff cuts look like?
India, for example, has promised to cut taxes on a variety of Swiss wines. In real terms, this is how the tariff cuts will be.
Currently, for all values of Swiss wines, the customs duty levied by the Government of India is 150 percent. Through this agreement, customs duties on Swiss wines priced less than $5 will remain at 150 percent for the next 10 years.
Wines priced between $5 and $15 will see duties cut to 50 percent by the 10th year after this agreement comes into effect.
Swiss wines priced above $15 will see duties to 25 percent by the 10th year after this agreement comes into effect.
Similarly, the base rate for diamonds cut or polished will be dropped to 2.5 percent from the present 5 percent in five years after the agreement comes into effect.
FTA’s signed by India
India has 13 regional and free trade agreements currently, excluding the TEPA signed with the EFTA countries.
India has agreements with Japan, South Korea, Sri Lanka, Bhutan, Mauritius, UAE, Australia, Thailand, Singapore, Malaysia and with the 10-member bloc, the Association of Southeast Asian Nations (ASEAN) — consisting of Brunei, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.
India is also a part of the South Asian Free Trade Area (SAFTA), which includes Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka.
Currently, India is negotiating free trade agreements with the European Union, the United Kingdom, Oman, Peru and Israel.
India was in negotiations with Canada over a trade deal that was paused by Ottawa in the first week of September 2023.
Later that month, Canadian Prime Minister Justin Trudeau announced that authorities in Canada were investigating a potential link between agents of the Government of India and the killing of Hardeep Singh Nijjar.
Nijjar, a Sikh extremist who was designated a terrorist by India, was killed by gunmen outside a gurdwara in Surrey, British Columbia on 18 June last year.
(Edited by Richa Mishra)
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Sirji
What are India’s gains? Indian exports to Switzerland are already enjoying duty reductions just as any other country. Swiss and allied countries exports to India will get benefit of duty reduction. The 100 billion investment and 15 million job creation is merely an ‘aim’ of the Swiss block and not a commitment.The block will ‘encourage’ private investment!! Mere headline management by the current Indian dispensation and as usual by the media. One requires critical analysis instead.😊