Newsletter/Booklets 30th Mar 2022
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:
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:
C. Trade in Services
The CEPA contains a robust Chapter on Trade in Services with comprehensive coverage, containing:
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
E. Government procurement
F. Institutional Mechanisms for Cooperation
The CEPA envisages the creation of various dedicated bodies to promote specific areas of engagement. For instance,
G. Dispute Resolution
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
[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
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