Context
Recently, India made a historic trade deal with the European Free Trade Association (EFTA).
India-EFTA Trade Agreement
- 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.
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- These articles codify obligation of conduct — an obligation to make an honest endeavor towards achieving a goal, notwithstanding the outcome or the result.
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- 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)
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About India’s Free Trade Agreement
- 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.
Way Forward
- 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.
About European Free Trade Association (EFTA)
- 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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May 14, 2024