Significance of India-EFTA trade deal

Source-This post on significance of India-EFTA trade deal has been created based on the article “Investment lessons from the India-EFTA trade deal” published in “The Hindu” on 12 May 2024/

UPSC Syllabus: GS Paper-2– International Relations-Bilateral, Regional and Global Groupings and Agreements involving India and/or affecting India’s interests.

Context-The negotiations with countries like the UK and European Union (EU) are currently stalled due to the ongoing parliamentary elections. However, before the elections, India secured a historic trade deal in March with the European Free Trade Association (EFTA), comprising Iceland, Liechtenstein, Norway, and Switzerland. Significance of India-EFTA trade deal

What is India- European Free Trade deal?

Read more- India-EFTA trade deal.

This newly minted Trade and Economic Partnership Agreement (FTA) between India and EFTA is expected to boost the low levels of existing trade between the two sides.

What is the significance of this FTA?

1) Inclusion of environment & labor-This FTA is significant because India has agreed to include issues like environment and labor, which it has traditionally opposed in trade agreements.

2) Investment Chapter-It is also unique as it includes a detailed investment chapter, which is missing in India’s other recent FTAs with countries like Australia, UAE, and Mauritius. The investment chapter focuses on investment facilitation, not merely protection.

3) Foreign Direct Investment– India persuaded EFTA countries to try to raise foreign direct investment (FDI) to India by $50 billion over 10 years, then another $50 billion in the next 5 years.

4) Employment Generation-It will facilitate the generation of 1 million jobs in India.

5) Obligation of conduct– These rules codify an “obligation of conduct,” which means EFTA countries must honestly try to reach these goals.However,they are not forced to achieve them. This sets a good example for negotiations with the UK, EU, and other countries.

What is India’s FTA 2.0 approach?

India’s earlier FTAs with countries like Japan, Korea, Malaysia, and Singapore included binding rules on both trade and investment. This approach demonstrated the inextricable linkage between trade and investment.

However, India has changed its approach recently. Instead of combining international trade and investment laws in its FTAs, it’s now separating them. For ex- with countries like Australia, Mauritius, and the UAE, India prefers to negotiate trade and investment agreements separately.

Thus India-EFTA trade deal that includes an investment chapter within the trade agreement, assumes great significance in this context.

What should be the way forward?

India needs a clear FTA policy, especially in dealing with international trade and foreign investment laws such as-

1) There is a need to negotiate trade and investment as part of one comprehensive economic treaty, rather than decoupling them.

2) There is a need to expand the scope of investment issues from mere facilitation to effective protection. Further, there must be an enforceable dispute settlement mechanism under international law.

3) In the backdrop of declining FDI levels in India, it is important to provide enforceable legal protection to foreign investors under international law. This move will boost their confidence.

Question for practice

What is the significance of India-EFTA trade deal?