Hindu Editorial Analysis : 14-May-2024

In March 2024, India took a significant step in international trade by signing a free trade agreement (FTA) with the European Free Trade Association (EFTA), which includes Iceland, Liechtenstein, Norway, and Switzerland. This agreement aims to enhance economic cooperation and promote free trade between India and the EFTA nations.

Overview of the EFTA

The EFTA was established in 1960 to foster closer economic ties in Europe. It focuses on facilitating free trade among its member countries. The new FTA with India marks an important milestone in this mission.

Key Features of the Agreement

The agreement consists of 14 chapters, each addressing vital trade aspects:

  • Market Access for Goods: Ensures easier entry for products between India and EFTA.
  • Rules of Origin: Clarifies how products qualify for reduced tariffs.
  • Trade Facilitation: Simplifies customs procedures.
  • Sanitary and Phytosanitary Measures: Sets health standards for food and agriculture.
  • Investment Promotion: Encourages investment from EFTA into India.
  • Intellectual Property Rights: Protects innovations and creative works.
  • Sustainable Development: Includes provisions for labor standards and environmental protection.

Notably, this is the first time India has included non-trade aspects in a trade agreement, emphasizing social and environmental concerns.

Investment Commitment

A standout feature of this agreement is the commitment from EFTA to invest $100 billion in India over the next 15 years. This investment will primarily come from the private sector and target industries like:

  • Chemicals
  • Pharmaceuticals
  • Machinery
  • Food Processing
  • Infrastructure and Transport

This investment is expected to create one million jobs in India, significantly contributing to economic growth.

Importance of the Agreement

This FTA is considered modern and ambitious, marking a pivotal moment in India-EFTA relations. It aims to:

  • Promote the “Make in India” initiative.
  • Support self-reliance (Atmanirbhar Bharat).
  • Generate jobs for India’s young workforce.
  • Facilitate technology collaboration in key sectors like health, renewable energy, and precision engineering.

The agreement will also provide Indian exporters with better access to European and global markets.

Challenges Ahead

Despite its potential benefits, the FTA faces several challenges:

  • Ratification Delays: The biggest hurdle is the need for ratification by the four EFTA countries, especially Switzerland.
  • Limited Trade Benefits for India: Given that EFTA already has low tariffs, the agreement may benefit EFTA’s exports to India more than vice versa.
  • Exclusions: Agricultural products and sensitive Indian items like dairy, coal, and soya are not included in the deal.
  • Export Difficulties: India may encounter challenges exporting agricultural products to Switzerland due to complex tariffs and quality standards.

Why In News

Recently, it has been observed that the India-EFTA trade deal is a major step forward for India in its approach to bilateral trade agreements. It creates a template worth emulating in the ongoing negotiations with the U.K., the EU, and other countries, highlighting India’s commitment to integrating non-trade aspects such as labor standards and environmental protections into future agreements.

MCQs about India-EFTA Free Trade Agreement

  1. What does the India-EFTA trade agreement primarily aim to enhance?
    A. Cultural exchange
    B. Economic cooperation and free trade
    C. Political alliances
    D. Military partnerships
    Correct Answer: B. Economic cooperation and free trade
    Explanation: The primary goal of the India-EFTA trade agreement is to promote economic cooperation and facilitate free trade between India and the EFTA member countries.
  2. Which of the following is a unique feature of the India-EFTA trade agreement?
    A. It includes military collaboration provisions.
    B. It allows for the import of agricultural products without tariffs.
    C. It includes a commitment from EFTA to invest $100 billion in India.
    D. It requires India to reduce its workforce by half.
    Correct Answer: C. It includes a commitment from EFTA to invest $100 billion in India.
    Explanation: A standout feature of the agreement is the binding commitment from EFTA to invest $100 billion in India over the next 15 years, primarily from the private sector.
  3. Which sectors are expected to benefit from the EFTA’s investment in India?
    A. Fashion and textiles
    B. Chemicals and pharmaceuticals
    C. Entertainment and tourism
    D. Real estate and construction
    Correct Answer: B. Chemicals and pharmaceuticals.
    Explanation: The investments from EFTA will primarily target industries such as chemicals, pharmaceuticals, machinery, food processing, and infrastructure, which are critical for India’s economic growth.
  4. What is one of the major challenges facing the implementation of the India-EFTA trade agreement?
    A. Overwhelming public support
    B. Need for ratification by EFTA countries
    C. Increased agricultural exports to Europe
    D. The inclusion of more agricultural products
    Correct Answer: B. Need for ratification by EFTA countries.
    Explanation: One of the biggest hurdles for the FTA to come into force is the pending ratifications by the four EFTA countries, particularly Switzerland, which could delay its implementation.

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