Introduction to India-EFTA Free Trade Agreement UPSC

Welcome to PreCrack! Recently, India & FETA has signed the free trade agreement on 10^th of March 2024. This development will boost the business and trade between both India and EFTA (European Free Trade Association).

Why TEPA (Trade and Economic Partnership Agreement) is in the News?

Recently, India & EFTA (a Block of 4 European Countries) has signed the Free Trade Agreement. It is a major news and development. The India-EFTA Free Trade Agreement is making headlines due to its strategic significance in fostering economic collaboration between India and the European Free Trade Association (EFTA) member states – Iceland, Liechtenstein, Norway, and Switzerland.

What is India-EFTA Free Trade Agreement 2024?

The India-EFTA Trade and Economic Partnership Agreement (TEPA), signed in March 2024, marks a significant step forward in economic relations between India and the European Free Trade Association (EFTA) – Iceland, Liechtenstein, Norway, and Switzerland.  This comprehensive agreement aims to unlock a wave of economic benefits for both sides.

Key points to the Agreement

We can consider these key points about this TEPA to understand this agreement more wisely & easily:

1. Signed: March 10, 2024 (Recent!), The India-EFTA Free Trade Agreement, officially named the Trade and Economic Partnership Agreement (TEPA), was signed on March 10, 2024.
2. Parties: India & EFTA (Iceland, Liechtenstein, Norway, Switzerland). The agreement involves India and the European Free Trade Association (EFTA), comprising Iceland, Liechtenstein, Norway, and Switzerland.
3. Agreement Structure: The comprehensive pact consists of 14 chapters, covering trade in goods, rules of origin, intellectual property rights (IPRs), trade in services, investment promotion, government procurement, technical barriers to trade, and trade facilitation.
4. Goal: Boost trade, investment, and economic cooperation. The primary objective is to enhance bilateral trade, attract investments, and foster economic cooperation between India and EFTA nations.
5. Reduced Tariffs: Significant cuts on tariffs for a wide range of traded goods. The agreement focuses on substantial reductions in tariffs, fostering increased trade for a diverse array of goods.
6. Service Liberalization: Opens doors for service providers in IT, finance, healthcare, etc. It facilitates the liberalization of services, providing opportunities for service providers in sectors like IT, finance, and healthcare.
7. Investment Boost: Aims to attract $100 billion investment from EFTA to India over 15 years. The agreement targets a significant investment boost, aiming to attract $100 billion from EFTA countries to India within a span of 15 years.
8. Benefits for India: Increased exports, job creation, access to technology, and infrastructure development. India stands to gain through amplified exports, job creation, technology access, and advancements in infrastructure.
9. Benefits for EFTA: Easier access to the large Indian market, reduced tariffs, and potential investment opportunities. EFTA nations benefit from improved access to the expansive Indian market, reduced tariffs, and potential investment prospects.
10. Scope: Covers trade in goods & services, investment, government procurement, IPRs, and trade facilitation.  The agreement comprehensively covers trade in goods and services, investment, government procurement, intellectual property rights, and trade facilitation.
11. Dispute Settlement: Includes a mechanism to address disagreements arising from the agreement. The agreement incorporates a dispute settlement mechanism to address any disagreements that may arise during its implementation.
12. Potential Challenges: Job displacement in some sectors and pressure on domestic industries due to competition. Anticipated challenges include potential job displacement in specific sectors and increased competition impacting domestic industries.
13. Investment Commitment Details: The EFTA Countries will invest the $100 billion as a investment in India in next 15 Years. .
14. Maximizing Benefits for India: Skill development, infrastructure improvement, and technological advancement are crucial. Realizing maximum benefits for India involves a focus on skill development, infrastructure enhancement, and technological advancements.
15. Trade and Economic Partnership Agreement (TEPA): The formal name of the agreement is the Trade and Economic Partnership Agreement (TEPA). Negotiations commenced in January 2008, culminating in a fast-track conclusion in October 2023.
16. Comparisons and Other Negotiations: India’s successful acceleration of FTAs with the UAE and Australia is highlighted, and separate negotiations are ongoing with the European Union (EU).
17. Trade Statistics: India-EFTA two-way trade was $18.65 billion in 2022-23, with Switzerland as India’s largest trading partner in the bloc. Relevant trade statistics include the two-way trade figure of $18.65 billion in 2022-23, with Switzerland emerging as India’s primary trading partner within EFTA.
18. Benefits for EFTA Countries: EFTA nations gain access to a major growth market, diversify supply chains, and enhance resilience through the agreement.

India-EFTA Free Trade Agreement Ceremony Photos

We have added the Photos of TEPA (Trade and Economic Partnership Agreement), which is also known as Free Trade agreement between India and EFTA, below-

What is EFTA?

The European Free Trade Association (EFTA) is a group of countries, including Iceland, Liechtenstein, Norway, and Switzerland, that collaborate on trade. It was formed on May 3, 1960, and works alongside the European Union (EU).

We can consider these key points about EFTA to understand it more easily:

1. Formation: Established on May 3, 1960.
2. Members: Includes Iceland, Liechtenstein, Norway, and Switzerland.
3. Purpose: A regional trade organization and free trade area.
4. Relation with EU: Operates alongside the European Union (EU).
5. Participation: Member states actively engage in the European Single Market and the Schengen Area.
6. Customs Union: While not part of the EU Customs Union, EFTA serves as an alternative trade bloc.
7. Origins: Initially created for states unwilling to join the European Economic Community (EEC).
8. Coordination: Although not a customs union, EFTA has a coordinated trade policy.
9. Bilateral Agreements: Member states can enter into bilateral third-country trade arrangements.
10. EU Relations: EFTA states have jointly concluded free trade agreements with the EU and other countries.
11. Access to Single Market: Iceland, Liechtenstein, and Norway are part of the European Economic Area (EEA).
12. Regulation: Compliance with EEA regulations is overseen by the EFTA Surveillance Authority and the EFTA Court.
13. Switzerland’s Approach: Switzerland has multilateral agreements with the EU and its member states.

Members of EFTA

EFTA includes Iceland, Liechtenstein, Norway, and Switzerland—a collaboration fostering economic cooperation and trade agreements.

1. Iceland

• Active participant in EFTA’s regional trade collaborations.
• Engages in economic cooperation and trade agreements.

2. Liechtenstein

• Contributor to EFTA’s economic collaboration.
• Involved in fostering trade agreements within the region.

3. Norway

• Actively engages in EFTA’s economic partnerships.
• Contributes to regional trade agreements.

4. Switzerland

• EFTA member contributing to economic cooperation.
• Engages in fostering trade agreements within the EFTA framework.

Objectives of India-EFTA Free Trade Agreement

The India-EFTA Free Trade Agreement, officially called the Trade and Economic Partnership Agreement (TEPA), has several objectives aimed at boosting economic ties between the two regions [PIB]:

1. Increased Trade
This is a primary goal, aiming to simplify customs procedures and reduce tariffs on a significant portion of goods traded between India and EFTA countries. This intends to make it easier and cheaper for businesses on both sides to export and import goods.

2. Investment Promotion
The agreement includes a commitment from EFTA to promote investments in India. The target is a substantial increase in foreign direct investment (FDI) over the next 15 years, aiming to create new jobs and boost the Indian economy.

3. Enhanced Market Access

Both India and EFTA countries will gain better access to each other’s markets. Indian exporters will benefit from lower tariffs on their goods entering EFTA markets, while EFTA countries will have easier access to the large and growing Indian consumer market.

4. Streamlined Processes

The agreement aims to simplify trade regulations and procedures, making it faster and less bureaucratic for businesses to conduct cross-border trade.

5. Job Creation

By fostering trade and investment, the agreement is expected to lead to job creation in both India and EFTA countries.

6. Stronger Partnership

The TEPA signifies a broader commitment to a stronger economic partnership between India and EFTA, fostering closer cooperation in various sectors.

Benefits of India-EFTA Free Trade Agreement

The Free Trade Agreement between both of India and EFTA is beneficial. We have added there benefits below-

Benefits for EFTA

1. Market Access: EFTA countries will gain easier access to the massive Indian consumer market. This presents a significant opportunity for EFTA businesses to export goods and services to a population of over 1.4 billion people.
2. Reduced Tariffs: The agreement aims to eliminate or significantly reduce tariffs on a large portion of goods traded between EFTA and India. This will make EFTA products more competitive in the Indian market.
3. Investment Opportunities: The growing Indian economy offers attractive investment opportunities for EFTA companies. The agreement may encourage increased foreign direct investment (FDI) from EFTA countries into India, potentially in areas like infrastructure, manufacturing, and technology.
4. Streamlined Trade: The agreement aims to simplify trade regulations and procedures, reducing bureaucratic hurdles for EFTA businesses exporting to India.
5. Stronger Partnership: The TEPA strengthens economic ties between EFTA and India, fostering potential for future collaboration in various sectors beyond trade.

Benefits for India

1. Increased Exports: Indian businesses will benefit from lower tariffs on their goods entering EFTA markets, making them more competitive and potentially increasing exports.
2. Foreign Investment: The agreement aims to attract significant foreign direct investment (FDI) from EFTA countries into India. This can provide much-needed capital for infrastructure development, job creation, and technological advancements.
3. Job Creation: Increased trade and investment are expected to lead to job creation in various sectors of the Indian economy.
4. Technology Transfer: The agreement could facilitate the transfer of technology and expertise from EFTA countries to India, boosting India’s manufacturing and technological capabilities.
5. Diversification: Trade with EFTA countries can help India diversify its trade partners, reducing dependence on any single market.

Significance of TEPA FTA

This FTA has many significances:

1. Bilateral Trade Boost

The India-EFTA Free Trade Agreement aims to enhance two-way trade between India and the European Free Trade Association (EFTA) member states.

2. Strategic Economic Growth

The agreement signifies a strategic move to promote economic growth and collaboration between India and EFTA nations.

3. Customs Duties Reduction

Through the accord, both parties commit to significantly reduce or eliminate customs duties on traded goods, fostering a more accessible market.

4. Diverse Agreement Chapters

The comprehensive agreement comprises 14 chapters, covering areas such as trade in goods, intellectual property rights, services, and investment promotion.

5. Supply Chain Diversification

EFTA countries aim to diversify their supply chains, making them more resilient with increased market access.

6. Foreign Investment Attraction

The agreement is expected to attract foreign investment from EFTA to India, contributing to economic growth.

7. Job Creation

With the anticipated increase in trade and investment, the agreement is likely to translate into the creation of additional job opportunities.

8. Shared Commitment

Symbolizing a shared commitment to open, fair, and equitable trade practices between India and EFTA member states.

9. Global Collaboration

Acknowledging the global leadership of EFTA countries in diverse sectors, fostering collaboration in innovation, R&D, digital trade, and financial services.

10. Economic Empowerment

The successful negotiation and signing of the agreement reflect India’s leap from the world’s eleventh-largest economy to the fifth-largest, highlighting the nation’s pursuit of economic empowerment on the global stage.

Other Key Signifiances

1. Switzerland – Largest Trading Partner

Switzerland emerges as India’s largest trading partner within the EFTA bloc, signifying a robust economic relationship.

2. Norway’s Significance

Norway’s role as an EFTA member contributes to the organization’s coordinated trade policy and bilateral agreements, impacting India’s economic engagements.

3. UAE and Australia Comparison

India’s successful strategy of expediting or fast-tracking Free Trade Agreement (FTA) negotiations with the UAE and Australia sets a precedent for similar approaches in international economic relations.

4. EFTA’s Evolution

EFTA, historically a dominant Western European trade bloc, evolves into a smaller yet influential entity, closely associated with the European Union (EU).

5. EFTA’s Alternative Role

Established in 1960, EFTA served as an alternative trade bloc for European states hesitant to join the then European Economic Community (EEC), demonstrating its historical importance.

6. Global Leadership in Innovation

The agreement recognizes the global leadership of EFTA countries in innovation and R&D, creating opportunities for collaboration in diverse sectors.

7. Quantum Leap in India’s Economy

Prime Minister Narendra Modi notes India’s quantum leap from the world’s eleventh-largest to the fifth-largest economy in the last decade, showcasing the nation’s economic progress.

Scope of India-EFTA Free Trade Agreement

The India-EFTA Trade and Economic Partnership Agreement (TEPA) has a broad scope encompassing various aspects of economic relations between India and the EFTA countries (Iceland, Liechtenstein, Norway, and Switzerland). Here’s a breakdown of its reach, including some numbers to add interest:

1. Trade in Goods

This is a core element, aiming to significantly reduce or eliminate tariffs on a large portion of goods traded between the two regions. The agreement will define specific rules of origin to ensure goods qualify for preferential treatment. Estimates suggest this could  reduce tariffs on over 90% of tariff lines, making a wider range of goods cheaper and more accessible for consumers on both sides.

2. Trade in Services

The TEPA goes beyond just physical goods and aims to liberalize trade in services. This can open up new opportunities for service providers in areas like:

• IT: India is a major IT hub, and the agreement could see increased movement of IT professionals between India and EFTA countries.
• Finance: The TEPA may allow for easier access for financial institutions from both regions to each other’s markets.
• Healthcare: Potential for collaboration in medical research and development, and potentially easier movement of qualified healthcare professionals.
• Education: The agreement could facilitate student exchange programs and promote collaboration between educational institutions.
• Tourism: Simplification of travel procedures could boost tourism between India and EFTA countries.
• Investment Promotion and Protection:  The agreement encourages EFTA countries to invest in India. It may include provisions for investment protection and dispute settlement mechanisms. EFTA countries have committed to invest $100 billion over 15 years in India, which could provide a significant boost to infrastructure development and job creation.

Other Key Areas:

1. Government Procurement: The TEPA might include provisions for increased transparency and fair competition in government procurement processes.
2. Intellectual Property Rights (IPRs): The agreement is likely to address IPR protection for areas like patents, copyrights, and trademarks.
3. Technical Barriers to Trade (TBTs): The agreement may establish mechanisms to address technical regulations and standards that could potentially hinder trade.
4. Trade Facilitation: The TEPA might include measures to simplify customs procedures, reduce red tape, and expedite the movement of goods across borders.
5. Dispute Settlement: A robust dispute settlement mechanism is likely to be included to address any disagreements arising from the interpretation or implementation of the agreement.
6. Beyond Trade: The TEPA might also pave the way for future cooperation in areas like research and development, innovation, and digital trade.

What is a Free Trade Agreement?

A Free Trade Agreement (FTA) is a pact between two or more countries to reduce or eliminate barriers to trade, facilitating the flow of goods and services across borders. These agreements aim to boost economic cooperation by reducing tariffs, quotas, and other restrictions on imports and exports.

Pros and Cons of a Free Trade Agreement

We have added the Pros and Cons of a Free Trade Agreement (FTA) below-

Why FTA is important for UPSC Preparation

Understanding Free Trade Agreements (FTAs) is crucial for UPSC (Union Public Service Commission) preparation as it encompasses various aspects relevant to the Indian economy, international trade, and diplomatic relations. Here’s why it is important:

1. Economic Policies: FTAs significantly influence a country’s economic policies. Aspiring civil servants need to comprehend how such agreements impact India’s economic growth, trade dynamics, and employment.
2. Global Relations: FTAs involve negotiations and collaborations with multiple nations. Aspirants should be aware of how these agreements shape India’s relationships with other countries and international organizations.
3. Trade and Commerce: FTAs have direct implications on trade and commerce. UPSC candidates must grasp the intricacies of how such agreements affect imports, exports, and overall economic stability.
4. Policy Decision Making: Knowledge of FTAs aids in understanding the government’s policy decisions regarding international trade, market access, and foreign investments.
5. Geopolitical Significance: FTAs are integral to geopolitical strategies. Aspirants need to analyze the geopolitical significance of these agreements in the context of India’s global positioning.
6. Indian Economy: As FTAs impact various sectors of the Indian economy, understanding their mechanisms is vital for UPSC aspirants to comprehend the nation’s economic landscape.
7. Current Affairs: FTAs are often in the news, and staying updated on these developments is crucial for the Current Affairs section of UPSC examinations.
8. Policy Formulation: Civil servants are involved in policy formulation. Understanding FTAs equips aspirants to contribute effectively to policies related to international trade and commerce.
9. Negotiation Skills: As FTAs involve negotiations, understanding the strategies and skills required in international negotiations is beneficial for future diplomats and policymakers.
10. UPSC Syllabus: The UPSC syllabus explicitly mentions topics related to international relations, economics, and trade policies, making FTAs a relevant and important area of study for aspirants.

What India & EFTA Buys from Each Other?

We have added the imports and exports of India with EFTA in the table below-

Key Facts about India-EFTA Free Trade Agreement 2024 UPSC

These are the key Facts about India-EFTA Free Trade Agreement 2024

FAQs – UPSC Questions on India-EFTA Free Trade Agreement 2024 (TEPA) – TEPA UPSC Questions

Question-1: What is the India-EFTA Free Trade Agreement (TEPA)?

Answer. The TEPA is a trade agreement between India and the European Free Trade Association (EFTA), comprising Iceland, Liechtenstein, Norway, and Switzerland.

Question-2: When was the TEPA signed, and when does it come into effect?

Answer. The TEPA was signed on March 10, 2024. The specific date of implementation may vary; UPSC aspirants should stay updated with current affairs.

Question-3: How many chapters does the TEPA include, and what are some key areas covered?

Answer. The agreement comprises 14 chapters, covering trade in goods, rules of origin, intellectual property rights, trade in services, investment promotion, cooperation, government procurement, and more.

Question-4: What is the significance of the TEPA for EFTA countries and India?

Answer. The TEPA is deemed significant as it provides market access, promotes diversified supply chains, attracts foreign investment, and fosters economic growth and job creation.

Question-5: How does the TEPA impact trade barriers and customs duties between India and EFTA?

Answer. The agreement aims to reduce or eliminate customs duties on traded goods and ease norms to facilitate trade in services and investments.

Question-6: Which countries are members of EFTA, and how does EFTA differ from the European Union?

Answer. EFTA comprises Iceland, Liechtenstein, Norway, and Switzerland. Unlike the EU, EFTA is not a customs union, allowing member states to enter bilateral third-country trade agreements.

Question-7: What are the key areas covered in India-EFTA two-way trade statistics?

Answer. The trade data includes figures on two-way trade, trade deficit, and the prominent trading partners within EFTA.

Question-8: How does the TEPA reflect India’s commitment to open, fair, and equitable trade?

Answer. Prime Minister Narendra Modi emphasized that the TEPA symbolizes a shared commitment to open, fair, and equitable trade, fostering collaboration in innovation and diverse sectors.

Question-9: What role does the TEPA play in India’s economic strategy and global positioning?

Answer. The TEPA aligns with India’s economic strategy by enhancing market access, diversifying supply chains, and positioning the country as a major growth market.

Question-10: What are the next steps or implications following the signing of the TEPA?

Answer. Aspirants should stay informed about the developments post-signing, such as the ratification process, specific impacts on different sectors, and any subsequent agreements or collaborations between India and EFTA nations.