India is aggressively working with various countries and economic unions on Free Trade Agreements (FTA). Notwithstanding the benefits, compliance around the utilization has to be robust. We encourage traders to optimize the utilization of FTAs to reduce the duty impact while maintaining proper compliance requirements. If you have any queries on how the latest FTA may impact or benefit your organization, please reach out to our trade compliance consultant professionals at Tradewin India.Background
- India and UAE signed a Comprehensive Economic Partnership Agreement (‘CEPA’) on 18 February 2022. The CEPA was concluded in a record time of 88 days and is considered to be the fastest trade deal negotiated to date.
- The India-UAE CEPA covers trade commitments in goods, trade in services, technical barriers to trade, dispute settlement, telecom, customs procedures, and pharmaceuticals. It incorporates detailed and separate chapters on ‘untouched topics’ such as government procurement, digital trade, and intellectual property rights.
- The CEPA is likely to be effective from the 1st week of May 2022.
Bilateral trade between India & UAE:
- The pre-pandemic annual trade volume between India and UAE was about USD 60 billion, which showed a steep decline in 2020-21 due to the Covid-19 pandemic. However, there has been a steady recovery in April-December 2021, with bilateral trade volume at USD 52 billion.
- Majorly, India imports petroleum and related products, precious metals, stones, gems & jewelry, and chemical products from UAE. Whereas its significant exports are of mineral fuels and oils, pearls, precious stones, metals and coins, electric and electronic equipment, and apparel.
Projected impact of the CEPA
- Increase in bilateral trade in goods between USD 100 billion over five years and trade in services to USD 15 billion.
- Increase in the competitiveness of Indian products of about USD 26 billion that are currently subjected to 5 percent import duty by UAE.
The CEPA is projected to significantly benefit from labor-intensive industries, MSMEs, and start-ups, creating one million jobs in India in various sectors such as textiles, pharmaceuticals, gems and jewelry, plastics, auto, and leather.
Key Highlights of the CEPA:
Tariff reduction on trade in goods
- Import into UAE –
Import duties will be brought down to zero percent on over 80% of total tariff lines immediately after implementing the CEPA and on 97% percent of tariff lines over the next five years.
- Import into India –
Import duties will be reduced immediately on about 65% of tariff lines and 90% in 10 years.
India has placed 10% of tariff lines in the negative list that would not be subject to tariff cuts. Such tariff lines pertain to products across different sectors, including dairy, fruits, vegetables, cereals, tea, coffee, sugar, food preparation, tobacco, petroleum waxes, auto and auto components, coke, dyes, soaps, natural rubber, tires, footwear, processed marbles, toys, plastics, and medical devices.
Both countries have separate exclusion/ sensitive lists detailing the products outside the scope of FTA.