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India – UAE Comprehensive Economic Partnership Agreements: Key Outcomes and Implications

Mar 15, 2022
  • Author(s) : Parthsarathi Jha , Sanjay Notani

    • Introduction

    After formally launching negotiations on the India-United Arab Emirates Comprehensive Economic Partnership Agreement (CEPA) in September 2021, India and United Arab Emirates (UAE) signed the CEPA on 18 February 2022[1]. While India has signed the Comprehensive Economic Cooperation and Partnership Agreement (CECPA) with Mauritius in 2021, the CEPA is the first major free trade agreement signed by India in the last decade.[2]  It is also India’s first bilateral trade agreement in the Middle East and North Africa (Mena) region[3].

    The CEPA is of strategic importance to India. UAE is currently India’s third largest trade partner and second largest export destination after USA.[4] UAE is also eighth-largest investor in India, having invested USD 11 billion between 2020 to 2021.[5] According to the Government of India, CEPA is expected to increase the bilateral trade between both the countries from the current USD 60 billion to USD 100 billion[6] in the next 5 years. The signing of CEPA may also step-up India’s potential free trade agreements with Gulf Cooperation Council (GCC) countries.[7] Also, as India is negotiating a number of free trade agreements with various other countries such as UK, the EU, Australia, Israel and Canada, the signing of CEPA in a short span of about six months demonstrates that India is open to fair and reciprocal engagement.[8]

     Key Outcomes and Implications on Indian Businesses

    While the text of the CEPA is not available yet, based on the information reported in the press and the press release[9] by the Government of India, it seems that the CEPA covers almost 90% of the bilateral trade between India and UAE.[10]

    The chapters that are broadly covered under the CEPA are on trade in goods and services, telecom, intellectual property rights, digital trade, rules of origin, government procurement, dispute settlement as well as a separate annex on pharma to aid access to India’s exports among others.[11] The CEPA may come into force by early May 2022 in India[12], and is expected to provide significant benefits to businesses in the form of enhanced market access and reduced tariffs.[13]

    A. Trade in Goods

    India has been offered a duty elimination on over 97% of its tariff lines, which corresponds to 99% of India’s exports in terms of value over the last decade.[14] While about 90% of India’s exports to UAE will attract zero duty from the day of entry into force of CEPA[15], about 9% of India’s exports will be subject to zero duty in a phased manner.[16]

    India’s exports to UAE are largely goods falling under sectors such as energy, gems and jewellery, electronics, textile, steel and metal articles.[17] According to the press release[18], labour intensive industries like gems and jewellery, textiles, leather goods and footwear and food processing industry stand to benefit the most. Other sectors such as aluminum, steel, copper, polyethylene and polypropylene may also benefit from certain tariff eliminations under the CEPA.[19] Some other goods such as electronics, chemicals and petrochem will be subject to zero duty in a staggered manner. In addition, some of the raw materials entering into India are expected to attract lower duties, further benefitting sectors such as gems and jewellery and plastic among others.[20]

    Trade Statistics Remarks
    Textile Sector:

    		 India, which is a net exporter of apparels and textiles, are currently subject to 5% duty in UAE.[21]

     

    Under the CEPA, these products will attract zero duty and over $2 billion additional exports are expected over the next 5 years.[22]

     
    Gems and Jewellery Sector:

    		 The Indian jewellery exported to UAE is currently subject to 5% duty.[23] Under the CEPA, these products will attract zero duty.

     

    In turn, India has provided duty concessions to gold exported from UAE.[24]

     

    Accordingly, while the import cost of raw materials will reduce, the exports of gold jewellery is expected to increase to $10 billion in 2023.[25]
    Plastics sector:

    		 India is a net importer of products under plastics sector from UAE.

     

    Tariff concessions on some of these products like polyethylene and polypropylene have been provided.

     

    This will in turn benefit downstream plastic products in terms of reduced input costs.[26]
    Aluminium sector:

    		 Certain tariff eliminations have been provided for aluminum.

     

    However, aluminum scrap has been excluded from the scope of coverage under the CEPA.[27]
    Steel and Iron sector:

    		 Certain tariff eliminations for steel have been provided for aluminum.

     

     

    Certain segments have however been excluded from the scope of the CEPA. These include dairy, fruits, vegetables, cereals, tea, coffee, sugar, food preparation, tobacco, petroleum waxes, coke, dyes, soaps, natural rubber, tyres, footwears, processed marbles, toys, plastics, scrap of aluminum and copper, medical devices, TV pictures, auto and auto components and sectors under the production-linked incentive scheme.[28]

    B. Market Access to Pharma Products

    A separate annexure to the CEPA has been included. This allows for automatic registration and marketing authorization of Indian generic medicines (in 90 days) in the UAE, provided such medicines are approved in any of the developed countries such as European Union, UK, Canada and Australia.[29] This move is unique to the CEPA and is expected to significantly benefit the Indian pharma businesses.

    C. Trade in Services

    Market access in services has been offered by UAE to India in about 111 sub-sectors including business services / professional services which include computer accounting, real estate, advertising packaging, telecom services, construction among others.[30]

    D. Permanent Safeguard Mechanism

    In order to keep a check on misuse of market access, two safeguard mechanism have been provided to enable both India and UAE to initiate steps in case of surge in imports. These include the transient safeguard mechanism for a specific period, and the auto-trigger safeguard mechanism, which would kick in when there is a surge in imports.[31] While this seems to be a more stringent mechanism than those provided for in other free trade agreements where India is a party, it remains to be seen how auto-trigger mechanism for different commodities and products is applied in practice.

    E. Rules of Origin

    Stringent rules of origin have been provided. For instance, the CEPA requires that preferential tariffs can be claimed at the time of clearance only after production of certificate of origin issued by a government agency of the relevant country.[32]  Also, to avoid routing of products manufactured in third countries to India via UAE, 40 percent value addition requirement has been provided on exporting items.[33] Some high-valued items seem to be excluded from such stringent value-addition requirements.[34] It remains to be seen what are the scope of products and the basis which such products have been excluded.

    F. Digital Trade

    CEPA is the bilateral trade agreement entered into by India which has a dedicated chapter on digital trade.  The chapters seem to focus on harmonizing regulatory standard on how digital trade between and India and UAE can be managed.[35]

     Conclusion

    The Government of India believes that CEPA will create jobs, open new markets for India’s startups, MSME’s, traders and all sections of businesses, make businesses more competitive and boost India’s economy.[36] Moreover, since UAE is a trading hub, the CEPA is expected to provide India market entry points to Africa, Middle East and Europe.[37]

    That said, India has been concerned with some of its existing FTAs as they have not produced desired outcome for Indian industry or reduce trade imbalance. [38] Currently, the imports into India are much higher than India’s exports to UAE, demonstrating trade imbalance between both the countries.[39]

    While the CEPA is expected to increase the bilateral trade in goods from the current USD 60 billion to USD 100 billion[40] and enhance the trade services to USD 15 billion[41] in the next 5 years between both the countries, it remains to be seen if Indian businesses will be able to turn CEPA into an opportunity to not only increase exports to UAE but also other markets in Middle East and Africa.

    We trust you will find this an interesting read. For any queries or comments on this update, please feel free to contact us at insights@elp-in.com or write to our authors:

    Sanjay Notani, Partner – Email – sanjaynotani@elp-in.com

    Parthsarathi Jha, Partner – Email – parthjha@elp-in.com

    Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion or advice. This document is not intended to address the circumstances of any individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.

    [1] List of documents launched/signed during the India-UAE Virtual Summit, 18 February 2022, available at: https://www.mea.gov.in/bilateral-documents.htm?dtl/34880/List_of_documents_launchedsigned_during_the_IndiaUAE_Virtual_Summit

    [2] Worldview with Suhasini Haidar | India-UAE FTA: what does it mean for bilateral ties?, The Hindu, 19 February 2022, available at: https://www.thehindu.com/news/national/worldview-with-suhasini-haidar-india-uae-fta-what-does-it-mean-for-bilateral-ties/article65063798.ece

    [3] What is India – UAE CEPA, how it will benefit both economies?, The Gulf News, 19 February 2022, available at: https://gulfnews.com/special-reports/what-is-india–uae-cepa-how-it-will-benefit-both-economies-1.1645252081334

    [4] FTA boost: All you need to know about India-UAE trade deal, The Times of India, 18 February 2022, available at: https://timesofindia.indiatimes.com/business/india-business/trade-benefits-explained-all-you-need-to-know-about-the-india-uae-trade-deal/articleshow/89658408.cms

    [5] FTA boost: All you need to know about India-UAE trade deal, The Times of India, 18 February 2022, available at: https://timesofindia.indiatimes.com/business/india-business/trade-benefits-explained-all-you-need-to-know-about-the-india-uae-trade-deal/articleshow/89658408.cms

    [6] India-UAE Virtual Summit, 18 February 2022, available at: https://www.mea.gov.in/press-releases.htm?dtl/34879/IndiaUAE_Virtual_Summit

    [7] FTA boost: All you need to know about India-UAE trade deal, The Times of India, 18 February 2022, available at: https://timesofindia.indiatimes.com/business/india-business/trade-benefits-explained-all-you-need-to-know-about-the-india-uae-trade-deal/articleshow/89658408.cms

    [8] A Balanced and Equitable Trade Pact, The Economic Times, 19 February 2022, available at: https://economictimes.indiatimes.com/news/economy/foreign-trade/a-balanced-and-equitable-india-uae-trade-pact-piyush-goyal/articleshow/89673282.cms

    [9] Ministry of Commerce & Industry, Press Release, 20 February 2022, available at: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1799756

    [10] India and UAE sign CEPA; deal to cover almost 90% bilateral trade, Business Standard, February 19, 2022, available at https://www.business-standard.com/article/economy-policy/india-and-uae-sign-cepa-deal-to-cover-almost-90-bilateral-trade-122021900046_1.html

    [11] A decadal India and UAE trade deal, The Economic Times, 19 February 2022, available at: https://economictimes.indiatimes.com/news/economy/foreign-trade/a-decadal-india-and-uae-trade-deal/articleshow/89673327.cms

    [12] Ministry of Commerce & Industry, Press Release, 20 February 2022, available at: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1799756

    [13] India-UAE Virtual Summit, 18 February 2022, available at: https://www.mea.gov.in/press-releases.htm?dtl/34879/IndiaUAE_Virtual_Summit

    [14] Look who’s celebrating India-UAE FTA!, Fortune India, 21 February 2022, available at: https://www.fortuneindia.com/macro/look-whos-celebrating-india-uae-fta/107180

    [15] Look who’s celebrating India-UAE FTA!, Fortune India, 21 February 2022, available at: https://www.fortuneindia.com/macro/look-whos-celebrating-india-uae-fta/107180

    [16] A decadal India and UAE trade deal, The Economic Times, 19 February 2022, available at: https://economictimes.indiatimes.com/news/economy/foreign-trade/a-decadal-india-and-uae-trade-deal/articleshow/89673327.cms

    [17] As per data for the period April – December 2021 available at: http://commernce.gov.in

    [18] Ministry of Commerce & Industry, Press Release, 20 February 2022, available at: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1799756

    [19] We hope to scrap tariffs of 100% goods in next few years, The Mint, 19 February 2022, available at: https://www.livemint.com/politics/policy/hope-for-100-tariff-elimination-over-next-few-years-uae-minister-of-economy-11645201995451.html

    [20] A decadal India and UAE trade deal, The Economic Times, 19 February 2022, available at: https://economictimes.indiatimes.com/news/economy/foreign-trade/a-decadal-india-and-uae-trade-deal/articleshow/89673327.cms

    [21] India-UAE CEPA: Import duties on 90 per cent of Indian products to be immediately eliminated, the Business Line, 19 February 2022, available at: https://www.thehindubusinessline.com/economy/india-uae-cepa-import-duties-on-90-per-cent-of-indian-imports-to-be-immediately-eliminated/article65065538.ece

    [22] Look who’s celebrating India-UAE FTA!, Fortune India, 21 February 2022, available at: https://www.fortuneindia.com/macro/look-whos-celebrating-india-uae-fta/107180

    [23] India-UAE CEPA: Import duties on 90 per cent of Indian products to be immediately eliminated, the Business Line, 19 February 2022, available at: https://www.thehindubusinessline.com/economy/india-uae-cepa-import-duties-on-90-per-cent-of-indian-imports-to-be-immediately-eliminated/article65065538.ece

    [24] What is India – UAE CEPA, how it will benefit both economies?, The Gulf News, 19 February 2022, available at: https://gulfnews.com/special-reports/what-is-india–uae-cepa-how-it-will-benefit-both-economies-1.1645252081334

    [25] Look who’s celebrating India-UAE FTA!, Fortune India, 21 February 2022, available at: https://www.fortuneindia.com/macro/look-whos-celebrating-india-uae-fta/107180

    [26] Look who’s celebrating India-UAE FTA!, Fortune India, 21 February 2022, available at: https://www.fortuneindia.com/macro/look-whos-celebrating-india-uae-fta/107180

    [27] Duty-free access for jewellery sector to get huge export boost under India-UAE trade pact: Commerce Secretary, The Economic Times, 19 February 2022, available at: https://economictimes.indiatimes.com/industry/cons-products/fashion-/-cosmetics-/-jewellery/duty-free-access-for-jewellery-sector-to-get-huge-export-boost-under-india-uae-trade-pact-commerce-secretary/articleshow/89684434.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

    [28] Duty-free access for jewellery sector to get huge export boost under India-UAE trade pact: Commerce Secretary, The Economic Times, 19 February 2022, available at: https://economictimes.indiatimes.com/industry/cons-products/fashion-/-cosmetics-/-jewellery/duty-free-access-for-jewellery-sector-to-get-huge-export-boost-under-india-uae-trade-pact-commerce-secretary/articleshow/89684434.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

    [29] Safeguards put in place to prevent misuse: Piyush Goyal, The Times of India, 19 February 2022, available at: https://timesofindia.indiatimes.com/business/india-business/safeguards-put-in-place-to-prevent-misuse-piyush-goyal/articleshow/89676627.cms

    [30] CEPA aspires to establish new era of progress for both nations: Abdulla bin Touq Al Marrit, UAE’s Minister of Economy, The Economic Times, 19 February 2022, available at: https://economictimes.indiatimes.com/news/economy/foreign-trade/cepa-aspires-to-establish-new-era-of-progress-for-both-nations-abdulla-bin-touq-al-marrit-uaes-minister-of-economy/articleshow/89673236.cms

    [31] No levy on 99% of exports to UAE after FTA inking: Commerce secy, The Hindustan Times, 20 February 2022, available at: https://www.hindustantimes.com/india-news/no-levy-on-99-of-exports-to-uae-after-fta-inking-commerce-secy-101645290650811.html

    [32] Strict rules of origin in India-UAE trade pact over routing concerns, the Business Line, 21 February 2022, available at: https://www.business-standard.com/article/economy-policy/dairy-tobacco-among-others-excluded-from-india-uae-trade-pact-official-122021900499_1.html

    [33] Strict rules of origin in India-UAE trade pact over routing concerns, the Business Line, 21 February 2022, available at: https://www.business-standard.com/article/economy-policy/dairy-tobacco-among-others-excluded-from-india-uae-trade-pact-official-122021900499_1.html

    [34] Strict rules of origin in India-UAE trade pact over routing concerns, the Business Line, 21 February 2022, available at: https://www.business-standard.com/article/economy-policy/dairy-tobacco-among-others-excluded-from-india-uae-trade-pact-official-122021900499_1.html

    [35] FTA to come into effect by early May, Indian goods to get duty-free access to UAE in 5 years, The Financial Express, 20 February 2022, available at: https://www.financialexpress.com/economy/fta-to-come-into-effect-by-early-may-indian-goods-to-get-duty-free-access-to-uae-in-5-years/2439032/

    [36] Ministry of Commerce & Industry, Press Release, 20 February 2022, available at: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1799756

    [37] Ministry of Commerce & Industry, Press Release, 20 February 2022, available at: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1799756

    [38] Won’t sign free trade agreements, says government, The Times of India, 17  November 2020, available at: https://timesofindia.indiatimes.com/business/india-business/wont-sign-free-trade-agreements-says-govt/articleshow/79254325.cms

    [39] As per data for the period April – December 2021 available at: http://commernce.gov.in

    [40] India-UAE Virtual Summit, 18 February 2022, available at: https://www.mea.gov.in/press-releases.htm?dtl/34879/IndiaUAE_Virtual_Summit

    [41] What is India – UAE CEPA, how it will benefit both economies?, The Gulf News, 19 February 2022, available at: https://gulfnews.com/special-reports/what-is-india–uae-cepa-how-it-will-benefit-both-economies-1.1645252081334; See also A decadal India and UAE trade deal, The Economic Times, 19 February 2022, available at: https://economictimes.indiatimes.com/news/economy/foreign-trade/a-decadal-india-and-uae-trade-deal/articleshow/89673327.cms