FTA to come into effect by early May, Indian goods to get duty-free access to UAE in 5 years

The UAE will allow as many as 99% of Indian goods at zero duty in five years under a free trade agreement (FTA) that was signed on Friday from about 90% in the first floor, commerce secretary BVR Subrahmanyam said on Saturday.

Similarly, India would allow duty-free access to 80% of goods from the UAE now and it would go up to 90% in 10 years. The UAE is India’s third-largest export destination and bilateral goods trade hit $43 billion in FY21.

The comprehensive economic partnership agreement (CEPA), as the FTA is called, will come into effect by early May, the secretary said.

New Delhi has, however, kept certain sensitive sectors and products, including most of those covered under the production-linked incentive schemes, out of the FTA’s purview. These also include dairy, fruits, vegetables, cereals, tea, coffee, sugar, food preparation, tobacco, petroleum waxes, coke, dyes, soaps, natural rubber, tyres, footwears, processed marbles, toys, plastics, scrap of aluminium and copper, medical devices, TV pictures, auto and auto components.

Subrahmanyam said Indian jewellery exporters will get duty-free access to the UAE, which currently slaps a 5% customs duty on such products. This will substantially raise its jewellery exports. For its part, New Delhi will allow annual gold imports up to 200 tonnes, or a fourth of its purchases from all nations, from the UAE at a concessional duty.

“In this particular agreement, we have given them (UAE) a TRQ (tariff rate quota) of 200 tonnes where the tariff (or import duty) in perpetuity will be one percentage point less than whatever is the tariff (7.5%) charged for the rest of the world.”

Interestingly, for the first time, India has included a digital trade chapter in the FTA, unlike those that were signed in the past. This suggests India is willing to discuss prospects in such emerging areas bilaterally.

“There will be a lot of harmonisation in regulatory standards on how you manage digital trade between India and UAE… We (India) are discussing digital trade or e-commerce with the European Union, Australia, UK and Canada,” the secretary said.

“We have provisions in the chapter regarding paperless trading, consumer protection, unsolicited commercial electronic messages, personal data protection, cross-border flow of information and cooperation of digital products and electronic payments,” Srikar Reddy, joint secretary in the commerce ministry, said.

The CEPA also includes a permanent safeguard mechanism that will kick in if there is any sudden and irrational spike in imports, a move aimed at protecting domestic industry.

Interestingly, India has tightened the rules of origin and value-addition norms under this FTA to address fears of round-tripping and illegal dumping of goods originating from a third country. To be eligible for duty-free access in India, products must have witnessed at least a 40% value addition in the UAE. This is higher than the requirement of 30-35% under earlier FTAs that India has signed.

“Trade diversion is not going to happen because of these stringent value addition norms,” Subrahmanyam added.

The secretary said it’s a comprehensive FTA. It covers goods, services, ROO, SPS (sanitary and phytosanitary), TBT (technical barriers to trade), dispute settlement and trade facilitation.

Through the CEPA, both the sides are aiming to raise bilateral trade (both goods and services) to $100 billion in five years to $60 billion now. Similarly, it’s expected to generate a million jobs for India in sectors such as apparel, plastic, leather and pharma.