Foreign Policy Watch: India-Middle East

India-UAE free trade agreement

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Greater Arab Free Trade Area (GAFTA)

Mains level : Paper 2- India-UAE FTA

Context

India has embarked on a new journey — a new free trade agreement (FTA) journey to be precise — with renewed zeal and vigor.

India’s revamped FTA strategy

  • Gaining meaningful market access: India’s approach towards FTAs is now focusing more on gaining meaningful market access and facilitating the Indian industry’s integration into global value chains.
  • Under the revamped FTA strategy, the Government of India has prioritized at least six countries or regions to deal with, in which the United Arab Emirates (UAE) figures at the top of the list for an early harvest deal.
  • The others are the United Kingdom, the European Union, Australia, Canada, Israel, and a group of countries in the Gulf Cooperation Council (GCC).
  • The early harvest deal is to be enlarged into a comprehensive FTA in due course of time.

Why does the FTA with UAE matter?

  • Important economic hub: The UAE has emerged as an important economic hub not just within the context of the Middle East/West Asia, but also globally.
  • Strategic location: The UAE, due to its strategic location, has emerged as an important economic centre in the world.
  • Although the UAE has diversified its economy, ‘the hydrocarbon sector remains very important followed by services and manufacturing.
  • Within services, financial services, wholesale and retail trade, and real estate and business services are the main contributors.
  • As part of the GCC, the UAE has strong economic ties with Saudi Arabia, Kuwait, Bahrain, and Oman, meaning the UAE shares a common market and a customs union with these nations.
  • Under the Greater Arab Free Trade Area (GAFTA) Agreement, the UAE has free trade access to Saudi Arabia, Kuwait, Bahrain, Qatar, Oman, Jordan, Egypt, Iraq, Lebanon, Morocco, Tunisia, Palestine, Syria, Libya, and Yemen.

India-UAE trade and investment ties

  • India and the UAE established diplomatic relations in 1972.
  • 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.
  • As India and the UAE strive to further deepen trade and investment ties, the soon-to-be-announced early harvest agreement comes at the most opportune time.
  • The aim is to boost bilateral merchandise trade to above U.S.$100 billion and services trade to U.S.$15 billion in five years.
  • Attractive export market: As we are witnessing a big turnaround in manufacturing, the UAE would be an attractive export market for Indian electronics, automobiles, and other engineering products.
  • Ninth biggest investor: The UAE’s investment in India is estimated to be around U.S.$11.67 billion, which makes it the ninth biggest investor in India.
  • On the other hand, many Indian companies have set up manufacturing units either as joint ventures or in Special Economic Zones for cement, building materials, textiles, engineering products, consumer electronics, etc.

Challenges

  • 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 reflection of NTBs can be seen through Non-Tariff Measures (NTMs) which have mostly been covered by Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade (TBT). The UAE has 451 SPS notifications.
  • Most of the notifications are related to consumer information, labelling, licensing or permit requirements and import monitoring and surveillance requirements.
  • These compliances pose a challenge for Indian exporters.

Conclusion

This FTA with the UAE will pave the way for India to enter the UAE’s strategic location, and have relatively easy access to the Africa market and its various trade partners which can help India to become a part of that supply chain, especially in handlooms, handicrafts, textiles and pharma.

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