Will EFTA show the way for other FTAs?
India has shown flexibility on positions that it has so far not been willing to yield in other trade negotiations
Earlier this month, India and the European Free Trade Association (EFTA) — comprising Switzerland, Norway, Iceland, and Liechtenstein — inked a new-generation trade agreement, the Trade and Economic Partnership Agreement (TEPA). The agreement, in the making for 15 years, signals two firsts for India. One, this is the first comprehensive trade agreement that the country has concluded with advanced economies. Two, India has agreed to include several key areas like intellectual property rights (IPR), and labour and environmental standards that it had resolutely refused in any bilateral trade deal. With India agreeing to include these erstwhile “non-negotiable” areas in the TEPA, will it now show similar flexibility and formalise the bilateral agreements with the European Union, Canada, Australia, and the United Kingdom?
At first look, India’s agreement with the EFTA does not seem attractive given the low levels of trade and investment between the two. In 2022, the share of EFTA members in India’s exports was a mere 0.4%, while India’s share in EFTA members’ exports was 3.7%. Importantly, 99% of EFTA’s exports to India were from Switzerland, 84% of whose major exports were gold. If Switzerland’s gold exports are excluded, India’s share in its exports was just 0.7%. The question now is whether TEPA can cause a large enough increase in trade volumes, which, in turn, could have a significant impact on the two parties’ economies.
Low trade volumes do suggest that there are opportunities for expanding trade flows. In 2022, organic chemicals, gems and jewellery accounted for two-thirds of India’s exports to Switzerland. With India’s fast-growing export sectors, namely, electronic goods and pharmaceuticals, having a relatively low presence in the EFTA markets, TEPA could help these sectors improve their presence.
TEPA would suggest that the tariff cuts India has agreed to could help the EFTA economies diversify their export basket. This possibility, though, seems limited given Switzerland’s two largest export items globally are gold and medicines. While its gold exports to India have reached their limit in a sense, the chances of any large increase in pharmaceutical exports are low, given stiff competition from India’s generics producers. For now, there is the possibility of increased exports of luxury items like watches. Cheaper Swiss cheese, however, will not find its way to Indian tables, as dairy items have been excluded from tariff cuts. Against this backdrop, any meaningful chance of the EFTA’s business prospects improving in India lies in the services sector, especially with increased Swiss presence in India’s financial sector.
TEPA made headlines on account of commerce minister Piyush Goyal’s announcement that it was “for the first time in the history of the world that we are inking an FTA with a binding commitment to invest $100 billion in India from EFTA countries”. However, the Chapter on Investment Promotion and Cooperation does not suggest that the EFTA has made a “binding commitment” to invest in India. It states that the partner countries “share the objectives” that “the EFTA States shall aim to increase foreign direct investment from investors of the EFTA States into India by 50 billion (US dollars) within 10 years from the entry into force of this Agreement and an additional 50 billion (US dollars) in the succeeding 5 years” and that “the EFTA States shall aim to facilitate the generation of 1 million jobs within 15 years”.
Such cautious language on the prospects of the EFTA’s “committed investment” may have been adopted due to two factors. First, governments cannot direct their companies to invest in specific countries. Second, over the past two decades, EFTA investments in India have been relatively low. Data from the department for promotion of industry and internal trade show that between April 2000 and December 2023, EFTA members had invested $11 billion, or just 1.7% of the total foreign investment in India in that period.
The Indian government would, of course, ardently hope that investments from the EFTA undergo a massive transformation given that participation of foreign companies in the country has sharply declined over the past two years. After accounting for divestment by foreign companies, FDI inflows had declined by 25% in 2022-23, and in the first nine months of the current fiscal, this decline stood at 41%. This trend needs to be reversed fast.
One of the more significant concessions offered by India relates to its patent regime. Past governments have refused to amend the Patents Act considering its significance for ensuring access to affordable medicines in India. The Patents Act seeks to fulfil this objective, among others, by ensuring the “working of patents” in India. The rules require a patent holder to file an annual statement on this. These provisions have been diluted in the TEPA. The chapter on Protection of Intellectual Property says, “No Party shall require patent owners to provide annual disclosures of information concerning the working of a patent”. In other words, patentees would no longer be obligated to disclose whether their patented inventions are being commercially exploited in India. Such amendments of key provisions of the India’s Patents Act should have been avoided for two reasons. First, it diluted the objectives of a carefully crafted law with the full concurrence of Parliament to ensure access to affordable medicines, a critical component of the health security of the citizens. Second, changes in the Patents Act offered as a part of concessions in a bilateral trade deal are unjustified since the benefits would accrue to non-members as well.
Biswajit Dhar is distinguished professor, Council for Social Development. The views expressed are personal
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