Etching a trade line to bond beyond oil – On India UAE FTA

News: Recently concluded India-UAE free trade agreement will enable two-way investment flows and help achieve ambitious export targets.

How the deal is significant for India?

First, the UAE has emerged as an important economic hub within the context of the Middle East/West Asia. It will help in sustaining the growth and promote manufacturing. The UAE would be an attractive export market for Indian electronics, automobiles, and other engineering products.

Second, it will increase investment flows because the UAE is the ninth biggest investor in India.

Third, both the UAE and India are aggressively pursuing FTAs with several important countries. Hence, companies from these two countries and multinational companies from other geographies too would find the UAE and India as an attractive market. For instance, GCC and the Greater Arab Free Trade Area (GAFTA) Agreement.

Fourth, it will help in realizing the ambitious target of U.S.$1 trillion of merchandise exports and U.S.$1 trillion of services exports by the year 2030.

Fifth, it will pave the way for India to enter the UAE’s strategic location and have easy access to the African market also. It can help India to become a part of the global supply chain.

How the deal is significant for the UAE?

The UAE, through its ‘Vision 2021’, has sought to diversify its economy and reduce its dependency on oil. According to WTO, since 2012, growth has been led by the non-hydrocarbon sectors reflecting the successful diversification of the economy.

How the relation between India and the UAE has evolved?

One, India and the UAE established diplomatic relations in 1972. The visit of the Indian Prime Minister to the UAE in 2015 marked the beginning of a new strategic partnership between the two countries.

During the visit of the Crown Prince to India in January 2017 as the chief guest at India’s Republic Day celebrations, it was agreed that bilateral relations were to be upgraded to a comprehensive strategic partnership. This gave momentum to India-UAE comprehensive economic partnership agreement launched in September 2021.

Two, the India-UAE total trade merchandise has been valued at U.S.$52.76 billion for the first nine months of the fiscal year 2021-22, making the UAE India’s third largest trading partner.

What is the challenge?

The major challenge is compliance requirements for Indian exporters. The UAE tariff structure is bound with the GCC and the applied average tariff rate is 5%. Therefore, the scope of addressing Non-Tariff Barriers (NTBs) becomes very important. The UAE has 451 SPS notifications. The SPS notifications are mainly related to live poultry, meat, and processed food. Also, the UAE has 534 TBT notifications related to fish, food additives, meat, rubber, electrical machinery, etc.

How India has changed its approach towards FTA?

One, India is now focusing more on gaining meaningful market access and facilitating Indian industry’s integration into global value chains.

Two, the new approach of FTA negotiations would respond to the need of new emerging dynamics in international trade and the Indian economy.

Three, the Government of India has prioritized at least six countries or regions. For instance, United Arab Emirates (UAE) figures at the top of the list for an early harvest deal. The early harvest deal is to be enlarged into a comprehensive FTA in due course of time.

Source: This post is based on the article “Etching a trade line to bond beyond oil” published in The Hindu on 18th Feb 2022.

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