Why is the UAE trade deal a milestone for India?


On February 18, India and the United Arab Emirates signed the Comprehensive Economic Partnership Agreement or CEPA, which is the first free trade agreement finalized by the government led by Narendra Modi since he came to power in 2014. (VO 1) The agreement was negotiated in a record 88 days and will come into force from May. It aims to increase non-oil trade between the two countries to $100 billion in five years from $45 billion in 2021. The UAE is currently India’s third largest trading partner and second largest export destination, after the United States. While India is the second largest trading partner of the United Arab Emirates and the first in terms of exports. The trade pact is expected to benefit around $26 billion worth of Indian goods subject to a 5% import duty by the United Arab Emirates. The UAE will remove tariffs on nearly 80% of goods, which account for 90% of Indian exports to the Gulf nation by value. India expects CEPA to generate 10 lakh jobs in labor intensive sectors such as textiles, gems and jewellery, leather, footwear, pharmaceuticals , agricultural products, medical devices, sporting goods and automobiles. Not just goods, CEPA also covers 11 service sectors and over 100 sub-sectors, which include business services, telecommunications, construction, education, tourism, nursing, finance, among others. . The agreement is broad in scope and includes areas such as government procurement, digital trade and intellectual property rights. To protect the interests of domestic producers, India has retained products such as dairy products, fruits, cereals, vegetables, tea, coffee, tobacco, dyes, soaps, shoes, petroleum , tires, toys, aluminum scrap, copper, processed marble, among others, out of the trade pact. The trade agreement also provided a permanent safeguard mechanism, which will protect exporters and businesses in both countries against any unjustified increase in volumes of a particular product. But the agreement comes with strict rules of origin. A value addition of at least 40% has been imposed on most goods to avoid the routing of products manufactured in third countries to India via the United Arab Emirates. For the first time in a trade agreement, CEPA provides for the automatic registration and marketing authorization of Indian generic drugs within 90 days, once they are approved in one of the developed countries. India has granted tariff concessions on gold imported from the UAE, while Indian exporters will enjoy duty-free access to the UAE market for jewellery. This is growing in importance as the two countries account for more than 16% of the world’s trade in diamonds, gold and jewelry.

India is seeking to strike a similar deal with the Gulf Cooperation Council later this year.

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