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  • India – UAE Comprehensive Economic Partnership Agreements: Key takeaways

India – UAE Comprehensive Economic Partnership Agreements: Key takeaways

Mar 30, 2022
  • Author(s) : Parthsarathi Jha , Sanjay Notani , Naghm Ghei, Harleen Sandha, Shruti Agarwal

    • Introduction

    On February 18, 2022, India, and the United Arab Emirates (UAE) signed the India-United Arab Emirates Comprehensive Economic Partnership Agreement (CEPA), set to come into force on  May 1,  2022.[1] Apart from regular chapters that generally exist in a CEPA such as  Trade in Goods and Services, Technical Barriers to Trade, Sanitary and Phytosanitary measures, Movement of Natural Persons, etc., this time the two countries  have also added a new chapter on digital trade.

    Customs Duties

    The average custom duty rate for imports into India is 13.8%[2]. On the other hand, the UAE has maintained a tariff rate of 5% for 87.2%[3] of its tariff lines and remaining tariff lines are subjected to a nil rate.[4] However, under the CEPA, India has been offered a duty elimination on over 97% of its tariff lines. This corresponds to 99% of India’s exports to UAE in terms of value over the last decade.[5] While about 90% of India’s exports to UAE will attract zero duty from the date of entry into force[6], about 9% of India’s exports will be subject to zero duty in a phased manner over a period ranging from 5 to 10 years.[7]

    This article provides a high-level summary of the key provisions of the CEPA, specifically highlighting new trends introduced in this CEPA. The article also concludes with some key implications for Indian businesses.

    Emerging Trends

    The CEPA marks a turning point in India’s bilateral trade, introducing a variety of detailed and novel provisions, in line with India’s economic goals. Some of these are highlighted below:

    A. Rules of Origin

    In line with the Indian Government’s ongoing efforts to curb the misuse of its Free Trade Agreements (FTAs), the CEPA:

    • Provides for additional product-specific rules applicable to certain strategic items.[8]
    • Provides for retrospective issuance of certificates of origin.[9]
    • Makes preferential treatment subject to compliance with domestic laws of the importing country.[10]
    • Requires the issuing authority and (exporter/producer/manufacture)[11] to maintain records for a period of 5 years, as well as importers to maintain records in line with the laws and regulations of the importing Party.[12]
    • Appoints the Department of Commerce or the Central Board of Indirect Taxes and Customs as the competent authority for issuance of certificates of origin.[13]

    B. Mutual Recognition in the Pharmaceutical Sector

    In a first for Indian FTAs, the CEPA provides a separate annexure for Bilateral Cooperation on Pharmaceutical Products which will include:

    • Finished pharmaceutical products and marketed biological products.[14]
    • A Mutual recognition mechanism for certain pharmaceutical certifications and automatic registration and market authorization of Indian generic formulations in an expedited time frame of 90 days.[15]
    • Recognition based on existing approval by the regulatory authorities of certain reference countries.[16]

    C. Trade in Services

    The CEPA contains a robust Chapter on Trade in Services with comprehensive coverage, containing:

    • Inclusion of additional services such as Tourist Guides Services, Customs clearance services and Container stations and depot services in India’s schedule of commitments as compared to its previous FTAs.[17]
    • Expansion in the scope of services covered under mutual recognition of professional qualifications viz., architecture, engineering, medical (doctors), accounting & auditing, company secretaries etc., which were non-existent in India’s earlier FTAs.[18]
    • Introduction of an enforcement and redressal mechanism for compensation in the event of unilateral modifications to a party’s commitments.[19]

    D. Digital Trade

    The CEPA places specific emphasis on digitization and endeavours to move towards paperless trade, having incorporated a dedicated chapter on digital trade for the first time. Emphasis has been placed on

    • Digital and electronic invoicing and payments to increase the efficiency, accuracy and reliability of commercial transactions.[20]
    • Consumer protection laws to protect consumers engaged in digital trade.[21]
    • Development of an electronic system for exchange of information with respect to rules of origin.[22]
    • Commitments on maintaining a legal framework that provides for the protection of the personal data of the users of digital trade.[23]
    • Promoting electronic information flows across borders subject to domestic laws and regulatory frameworks.[24]
    • Maintenance of the status quo with respect to WTO E-Commerce Moratorium.[25]
    • Exclusion of the dispute resolution provisions from this chapter.[26]

    E. Government procurement

    • Parties have incorporated the principle of national treatment as applicable to government procurement.[27]
    • In past agreements, India either did not make commitments on government procurement or limited such commitments to most favoured nation treatment.[28]

    F. Institutional Mechanisms for Cooperation

    The CEPA envisages the creation of various dedicated bodies to promote specific areas of engagement. For instance,

    • To promote investment and expand trade in product and services, a UAE-India Technical Council on Investment and Trade Promotion and Facilitation will be set up.[29]
    • Committee on SME Issues whose main role would be to strengthen SMEs competitiveness, promote seminars, webinars, etc. to inform SMEs of the benefits available under the CEPA, identify ways to assist SMEs, etc.[30]
    • A Committee on Economic Cooperation has been envisaged which will formulate and develop Annual Work Programs and their implementation mechanisms.[31]

    G. Dispute Resolution

    • In line with the India-Mauritius CECPA, the CEPA incorporates detailed provisions on dispute resolution, including with respect to rules of procedure.[32] In the past, dispute resolution provisions of India’s FTAs have remained largely unutilized. However, considering the on-going stalemate concerning WTO dispute settlement at the WTO, cohesive dispute settlement mechanisms in India’s FTAs may present an alternative mechanism to resolve trade disputes bilaterally.

    Implications for businesses

    Overall, the CEPA is expected to increase bilateral trade volumes from USD 60 billion to USD 100 billion in 5 years,[33] as well as create 1 million jobs across labour-intensive sectors such as textiles, gems & jewellery, leather, footwear, pharma, agriculture products, automobiles,[34] etc., wherein the government has already been pushing for self-sufficiency through various Production Linked Incentive (PLI) schemes. The CEPA is expected to provide a fillip to these schemes.

    Certain sectors are expected to receive significant benefits – such as the pharmaceutical sector – which will be benefited from regulatory relaxations. The Gems & Jewellery, Textile, etc. sectors will be benefited from concessional or nil import duties.[35]

    Notably, India has chosen to keep certain sensitive goods out of the purview of its commitments. Goods[36] such as dairy, fruits and vegetables, cereals, tea, coffee, sugar, natural rubber, tyres, footwear, toys, scrap of aluminium and copper, auto and auto components and certain articles of plastics, which have been subject to a variety of import restrictions in the past two years, have been kept out of the purview of India’s commitments. The Government’s position with respect to these goods is likely to remain conservative in its future FTA negotiations as well.

    UAE, on the other hand, has excluded the energy Resource Sector[37] from the ambit of the agreement. Further certain items like T-Section iron alloy, dairy items, etc. have also been excluded form specific tariff commitments made by UAE.[38]

    The CEPA is noteworthy given that it constitutes the first comprehensive FTA signed by India in the past decade, ushering in what many consider a new era in India’s bilateral trade relations. The CEPA is likely to set the stage for several on-going negotiations with other trading partners, including countries within the Gulf Cooperation Council[39] with whom previous negotiations have been left in cold storage.[40] Moreover, given the UAE’s  strategic location the CEPA is viewed as providing a gateway to the trade with the entire Middle East, West Asia and North Africa regions.[41]

    Note: This alert is the first amongst a series of ELP’s India – UAE alerts. While the current alert provides a general overview, the subsequent notes will provide more in-depth analysis of key issues.

    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
    Naghm Ghei, Senior Associate – Email – naghmghei@elp-in.com
    Harleen Sandha, Associate – Email – harleensandha@elp-in.com
    Shruti Agarwal, Associate – Email – shrutiagarwal@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] India – Import Tariffs, Privacy Shield, available at:https://www.privacyshield.gov/article?id=India-Import-Tariffs#:~:text=According%20to%20the%20latest%20WTO,WTO%20latest%202017%20data%20available)
    [3] Comprehensive Economic Partnership Agreement: What the UAE trade deal holds, Financial Express, 1 March 2022 available at: https://www.financialexpress.com/opinion/comprehensive-economic-partnership-agreement-what-the-uae-trade-deal-holds/2447241/
    [4]Import Tariff, United Arab Emirates – Country Commercial Guide, 08 January 2022, available at: https://www.trade.gov/country-commercial-guides/united-arab-emirates-import-tariffs#:~:text=In%20general%2C%20the%20UAE%20has,CIF%20value%20of%20most%20products
    [5] Press Information Bureau, Ministry of Commerce & Industry, 20 February 2022, available at: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1799756
    [6] 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
    [7] 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; see Annex 2A (Schedule of Specific Tariff Commitments of India on Trade in Goods), India UAE CEPA Chapter-2-Annex-2A-Copy-of-India-UAE-CEPA-Final-Offer-to-UAE-Schedule-of-Tariff-Concessions-As-shared-on-20.12.21-1045AM.pdf (commerce.gov.in)
    [8] For instance, agricultural items are subject to a higher threshold of minimum value addition (of 40%), while certain iron and steel products are required to be melted and poured in the country of origin to receive preferential treatment. See. Annex 3B (Product Specific Rules), India UAE CEPA Chapter-3-Annex-3B.pdf (commerce.gov.in)
    [9] Article 3.14, Chapter 3 of India UAE CEPA Chapter-3.pdf (commerce.gov.in) This trend started in India-Mauritius CECPA and has been continued in this CEPA too.
    [10] Article 3.25, Chapter 3 of India UAE CEPA Chapter-3.pdf (commerce.gov.in) This trend started in India-Mauritius CECPA and has been continued in this CEPA too.
    [11] Article 3.19, Chapter 3 of India UAE CEPA Chapter-3.pdf (commerce.gov.in) This trend started in India-Mauritius CECPA and has been continued in this CEPA too.
    [12] Article 3.18, Chapter 3 of India UAE CEPA Chapter-3.pdf (commerce.gov.in)
    [13] Article 3.1, Chapter 3 of India UAE CEPA Chapter-3.pdf (commerce.gov.in). This trend started in India-Mauritius CECPA and has been continued in this CEPA too.
    [14] Article 1, Annex 5A of India UAE CEPA https://commerce.gov.in/wp-content/uploads/2022/03/Chapter-5-Annex-5A.pdf
    [15] Article 8, Annex 5A of India UAE CEPA https://commerce.gov.in/wp-content/uploads/2022/03/Chapter-5-Annex-5A.pdf
    [16] These countries are Australia, Canada, European Union, Japan, the United States of America, or the United Kingdom; Article 5, Annex 5A of India UAE CEPA https://commerce.gov.in/wp-content/uploads/2022/03/Chapter-5-Annex-5A.pdf
    [17] Annex 8A, Chapter 8, https://commerce.gov.in/wp-content/uploads/2022/03/Chapter-8-Annex-8A.pdf
    [18] Article 8.11, Chapter 8 of India UAE CEPA https://commerce.gov.in/wp-content/uploads/2022/03/Chapter-8.pdf
    [19] Article 8.8, Chapter 8 of India UAE CEPA https://commerce.gov.in/wp-content/uploads/2022/03/Chapter-8.pdf
    [20] Article 9.16 and 9.17, Chapter 9 of India UAE CEPA Chapter-9.pdf (commerce.gov.in)
    [21] Article 9.8, Chapter 9 of India UAE CEPA Chapter-9.pdf (commerce.gov.in)
    [22] Article 3.34, Chapter 3 of India UAE CEPA Chapter-3.pdf (commerce.gov.in)
    [23] Article 9.10, Chapter 9 of India UAE CEPA Chapter-9.pdf (commerce.gov.in)
    [24] Article 9.11, Chapter 9 of India UAE CEPA Chapter-9.pdf (commerce.gov.in)
    [25] Article 9.15, Chapter 9 of India UAE CEPA Chapter-9.pdf (commerce.gov.in)
    [26] Article 9.3, Chapter 9 of India UAE CEPA Chapter-9.pdf (commerce.gov.in)
    [27] Article 10.5, Chapter 10 of India UAE CEPA Chapter-10.pdf (commerce.gov.in)
    [28] Chapter 10 of India-Japan CEPA IJCEPA_Basic_Agreement.pdf (commerce.gov.in)
    [29] Article 12.3, Chapter 12 of India UAE CEPA Chapter-12.pdf (commerce.gov.in)
    [30] Article 13.4, Chapter 13 of India UAECEPA Chapter-13.pdf (commerce.gov.in)
    [31] Article 14.8, Chapter 14 of India UAE CEPA Chapter-14.pdf (commerce.gov.in)
    [32] Chapter 15 of India UAE CEPA Chapter-15.pdf (commerce.gov.in)
    [33] Industry calls India-UAE CEPA pact game changer, but warns of bottlenecks ahead; The Economic Times, 22 February 2022, available at:
    https://economictimes.indiatimes.com/small-biz/trade/exports/insights/industry-calls-india-uae-cepa-pact-game-changer-but-warns-of-bottlenecks-ahead/articleshow/89742538.cms
    [34] Why is the trade deal with UAE a significant step for India?; The Business Standard, 23 February 2022, available at: https://www.business-standard.com/podcast/economy-policy/why-is-the-trade-deal-with-uae-a-significant-step-for-india-122022300080_1.html
    [35] Id.
    [36] Details of export made by UAE to India in the year 2020 available at: https://tradingeconomics.com/united-arab-emirates/exports/india
    [37] India’s Confirmation on UAE’s Letter on Energy dated 18 February,2022, available at: 2-India-Confirmation-Letter-on-Energy.pdf (commerce.gov.in)
    [38] See. ANNEX 2B Schedule of Specific Tariff Commitments of United Arab Emirates (UAE) on Trade in Goods of India-UAE CEPA, Chapter-2-Annex-2B-Final-UAE-Revised-Market-Access-Offer-2118-Dec-18-2021.pdf (commerce.gov.in)
    [39] GCC is a union of six countries in the Gulf region, namely, Saudi Arabia, UAE, Qatar, Kuwait, Oman, and Bahrain
    [40] Trade pact inked with UAE to set GCC template, The Economic Times, 28 March 2022, available at: https://economictimes.indiatimes.com/news/economy/foreign-trade/trade-pact-inked-with-uae-to-set-gcc-template/articleshow/90503919.cms
    [41] Press Information Bureau, Ministry of Commerce & Industry, 20 February 2022, available at: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1799756