India-EFTA Trade Agreement

GS Paper II International Relations

Context

Recently, India made a historic trade deal with the European Free Trade Association (EFTA).

Historical Background: Negotiations on a broad-based Trade and Investment Agreement between India and the EFTA States were officially launched in January 2008.
Significance of EFTA: Environment and Labor Integration: India has agreed to include issues such as environment and labor, which it has traditionally opposed incorporating in trade agreements.
- Emphasis on Investment Facilitation: India-EFTA FTA includes a detailed investment chapter, which is missing in the other recent Indian FTAs.
  - It focuses on investment facilitation issues, not investment protection.
- Foreign Direct Investment (FDI) Commitment from EFTA Nations: India has managed to extract a promise from the EFTA countries that they shall “aim to” increase FDI to India to $50 billion within 10 years of the FTA coming into force.
  - Followed by another $50 billion in the succeeding five years.
- Commitment to Job Creation in India: Article 7.1(3)(b) of the investment chapter provides that the EFTA states shall “aim to” facilitate the generation of one million jobs in India.

These articles codify obligation of conduct — an obligation to make an honest endeavor towards achieving a goal, notwithstanding the outcome or the result.
- - EFTA countries are legally obligated to make an honest effort to invest $100 billion and generate one million jobs in India.
Challenges faced in this FTA:
- Intellectual Property Rights (IPR): It has been a persisted issue since 2008.
  - The European Free Trade Association (EFTA) states especially Switzerland and Norway are specialised in pharmaceutical products.
  - The EFTA states are apprehensive that the free trade agreements with India could affect their competitive advantage and the profitability of the pharmaceutical companies located in the EFTA states.
- Data Exclusivity: It could impact India’s drug industry, a major exporter of affordable drugs as it makes the clinical trial data about a drug exclusive for at least six years.
India, as the largest supplier of generic medicines, has opposed including data exclusivity in Free Trade Agreement (FTA) negotiations, despite recent leaked drafts indicating its presence in discussions.

Free Trade Agreements (FTAs):

FTAs are arrangements between two or more countries or trading blocs that primarily agree to reduce or eliminate customs tariff and non tariff barriers on substantial trade between them.
Classification: FTAs can be categorized as:
- Preferential Trade Agreement (PTA)
- Comprehensive Economic Cooperation Agreement (CECA)
- Comprehensive Economic Partnership Agreement (CEPA)

Binding Trade and Investment Rules: FTAs routinely contain binding rules on both trade and investment.
India’s FTAs signed in the first decade of this century with countries such as Japan, Korea, Malaysia and Singapore are based on this economic logic.
Investment Protection: In addition to binding trade rules, they all contain an investment chapter with provisions for protecting investment.
FTA 2.0: India decoupled international trade law from international investment law.
FTAs with Australia, Mauritius, and the UAE which contain binding trade but not investment rules.
Separate Deals for Trade and Investment: India’s approach seems to be to have separate agreements on trade and investment with the same country.
- This is most markedly seen in the case of the UAE. After signing the FTA with the UAE in 2022, India and the UAE entered into a bilateral investment treaty earlier this year.
India-UK Decoupling: Decoupling approach to the U.K. where trade and investment agreements are seemingly negotiated as two disparate treaties.

Need for a Clear FTA Policy- FTA 3.0: India needs a clear FTA policy, especially in dealing with international trade and foreign investment laws.
- Given the decline in foreign direct investment levels in India, a well-defined and inclusive FTA policy is crucial to propel the country towards a path of heightened economic growth.
Integration of Trade & Investment: India expects not just trade but also higher investment flows from a particular country, few critical elements must be incorporated into its FTA policy:
- India should negotiate trade and investment as part of one comprehensive economic treaty, decoupling trade from investment is not a good idea. Combining the two would give India a clear negotiating leverage to strike a beneficial deal.
- For example, India can argue that it needs more concessions in trade in return for offering something on investment or vice-versa.
Strengthening of Investment Protection: India should consider expanding the scope of investment issues from mere facilitation to effective protection, with an efficacious dispute settlement mechanism under international law.
Boosting Investor Confidence: Providing enforceable legal protection to foreign investors under international law will boost confidence.

Establishment: On May 3, 1960
Aim: To set up for the promotion of free trade and economic integration to the benefit of its member states and the benefit of their trading partners around the globe.
Members: It consists of four European countries – Iceland, Liechtenstein, Norway, and Switzerland.
Headquarters: Geneva, Switzerland.
Features: The EFTA countries are all part of the Schengen area and all its member states are members of the WTO.
Mandates: The main tasks of the Association are threefold:
- Regulation of Economic Relations: Maintaining and developing the EFTA Convention, which regulates economic relations between the four EFTA States.
- Managing the Agreement on the European Economic Area (EEA Agreement): This EEA Agreement brings together the EU and 3 of the EFTA States – Iceland, Liechtenstein and Norway – in a single or also referred to as Internal Market.
- For Free Trade Agreements: Developing EFTA’s worldwide network of free trade agreements (FTAs).

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