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India and UAE Fostering Economic ties through CEPA

by Dr Khushnam P N - 27 June, 2022, 12:00 275 Views 0 Comment

The Comprehensive Economic Partnership Agreement (CEPA) was signed during the virtual summit between Prime Minister Narendra Modi and the Crown Prince of Abu Dhabi, Sheikh Mohammed Bin Zayed Al-Nahyan on 18th February 2022. Later on, the Minister of Commerce and Industry, Consumer Affairs, Food and Public Distribution and Textile announced the unveiling of the agreement during his visit to Dubai on 28th March, 2022. The origin can be traced to the India-GCC Framework Agreement on Economic Cooperation, 2004. The India-UAE CEPA has come into force on 1st May 2022, and is expected to boost the bilateral trade from USD 60 Billion to USD 100 Billion in five years.

Back in November 2020, EAM, Dr S Jaishankar remarked that in the changing geopolitical scenario in the region in the wake of the Abraham Accord, UAE will emerge as a logistical hub for the Asian economies, also benefiting India. He further added that “there are a lot of areas which have not realised the full potential” between India and UAE mutually benefiting both the countries for shared prosperity and security.

The “CEPA is the first deep and full free trade agreement to be signed by India with any country in the past decade” which covers such a comprehensive range of trade issues as “Trade in Goods, Rules of Origin, Trade in Services, Technical barriers to Trade (TBT), Sanitary and Phytosanitary measures (SPS), Dispute Settlement, Movement of Natural Persons, Customs, Telecom Procedures, Pharmaceutical Products, Government Procurement, IPR, Investment, Digital Trade and Cooperation in other Areas”. The agreement has put in place an institutional mechanism that will cover almost all the tariff lines dealt in by both India and UAE. The mutuality of the benefits can be gauged from the fact that both will get preferential market access gain from each other. As per the agreement, UAE will get access to 100 sub-sectors and India around 111 sub-sectors of service sectors such as business, communications, construction and related engineering services, distribution, education, environment, financial, transport and recreational cultural and sporting services. There is a separate Annex to facilitate access to Indian pharmaceuticals access.

The agreement would further boost the investment trajectory. With an estimated investment of US$18 billion, the UAE is the eighth largest investor in India. The two have also signed an MOU whereby UAE has made the commitment of investing around US$75 in infrastructure development in India. Besides the Government of Dubai has signed MOU with the Jammu and Kashmir Administration for investment in real estate development, Industrial Parks, IT Towers, multi-purpose towers, logistics, medical colleges, and super-specialty hospitals, etc.

The two have emerged as leading trading partners for each other and the CEPA is a sure process to enrich and broaden the economic engagement for achieving their respective economic visions. The UAE has been the second-largest export destination of India for the year 2019-2020. It also assumes a crucial position in India’s energy security in terms of supply and being a key partner in upstream and downstream sectors as well as the development of strategic petroleum reserves.

The CEPA will deepen the strategic economic engagement by creating mutually beneficial employment opportunities, increasing purchasing power, raise the standard of living and all economic and social spheres of life in both the countries. Talking about the agreement (CEPA), V Muraleedharan, Minister of State for External Affairs said that “Bilateral relations between the two countries will be warmer with the agreement and along with this boom in trade, job opportunities would also be created”. Besides, the CEPA is expected to produce more congenial conditions for the growth of industries and production, and enhance their competitiveness by accelerating the process of technological advancement and their speedy adoption in newer fields of economy, the minister added.

The agreement is the first Free Trade Agreements with major trading partners like Australia, the UK, Israel, Canada and the European Union to boost exports to one trillion dollars each in merchandise and services by 2030. The estimated target of the CEPA is to increase the bilateral merchandise trade to $100 billion by 2030. The agreement will produce favourable atmosphere to widen the scope of such agreement with other countries in the region. The Commerce Minister, Piyush Goyal has already said that India could conclude a similar Free Trade Agreement with all the Gulf Cooperation Council countries possibly by the end of this year.

The agreement is expected to ease numerous trade access process. Within five to ten years, the zero-duty access for Indian products to the UAE is set to expand to 97 percent of the UAE tariff lines corresponding to around 99 percent of India’s export value. This is going to be very beneficial for such key sectors as gems and jewellery, textile, leather, sports and engineering goods, automobiles and pharmaceuticals.

A chapter on digital trade is a notable feature of the Comprehensive Economic Partnership Agreement. This indicates India’s willingness to discuss the issue in a bilateral free trade agreement, surely a marked testimony of mutual trust and confidence which is a necessary condition for the desired outcome. It deals with paperless trading, consumer protection, unsolicited commercial electronic messages, personal data protection, cross-border flow of information and cooperation on digital products and electronic payments. It is expected to foster economic ties in the longer term between the two countries. To ensure that it facilitates the intended benefits on a sustained basis, the regulatory bodies of the two countries will be in constant contact to maintain harmony in the digital trade, said the Indian Commerce Secretary, BVR Subrahmanyam.

The CEPA marks a new dimension of the shared vision of the two credible strategic partners to complement each other to achieve their economic vision together and strengthen their global pursuits in a mutually reinforcing manner. The remark of the External Affairs Minister, S Jaishankar in Feb 2022 to UAE’s official Emirates News Agency, WAM has very aptly articulated that the signing of the CEPA “is a milestone event in our bilateral relations” and “will open new opportunities in both trade in goods and services, and will lead to enhanced investments”. The agreement is viewed in India as a pragmatic move as the UAE represents the gateway to the markets of the region of West Asia, Europe and Africa.

The CEPA is going to intertwine the interests of the two countries on a firmer ground serving their mutual geo-economic and geopolitical interests in the stability and security of the Gulf and wider West Asia. It will further boost India’s relationship with Israel, another crucial strategic partner in the region in the post-Abraham Accord economic engagement syndrome between UAE and Israel. Besides, it will have an added significance for the emerging so-called West Asia Quad (India, Israel, UAE and USA) which has recently been referred to as I2U2. Thus, CEPA has wider and multifarious benefits for India to serve its vision of Extended Neighbourhood Policy in the region and a credible partner for maritime cooperation and security in the Indian Ocean and wider Indo-Pacific for its vision of shared prosperity.

Dr Khushnam P N
Author is the Director of Research, The Indian Futures (IR and Regional Security Researcher & Analyst). Specialization: Iran, US & Gulf Security
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