Context : India signed a free trade pact on March 10 with a group of European nations — Switzerland, Norway, Iceland and Liechtenstein — committing to reduce tariffs, while New Delhi will receive $100 billion in investments over the next 15 years.
Historical Background of EFTA
- EFTA is an intergovernmental organisation established in 1960 by the EFTA Convention, that promotes free trade and economic integration between its members, within Europe and globally .
- There were 7 founding countries: Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the United Kingdom (UK). They were joined in 1970 by Iceland, in 1986 by Finland and in 1991 by Liechtenstein. Meanwhile, in 1973, Denmark and the UK joined the EU; in 1986, Portugal joined the EU, and, in 1995, Austria, Finland and Sweden joined the EU, consequently leaving EFTA.
- EFTA currently has 4 member countries: Iceland, Liechtenstein, Norway and Switzerland.
Importance and Structure
- The EFTA countries have developed one of the largest networks of Free Trade Agreements (FTAs). These FTAs span over 60 countries and territories, including the EU.
- EFTA’s highest governing body is the EFTA Council. It generally meets 8 times a year at ambassadorial level and twice a year at ministerial level.
- The headquarters of the EFTA Secretariat are located in Geneva, with offices in Brussels and Luxembourg. The Secretariat in Geneva assists the EFTA Council in the management of relations between the 4 EFTA States, and deals with the negotiation and operation of EFTA’s FTAs and Joint Declarations on Cooperation with non-EU countries.
- The Secretariat in Brussels provides support for the management of the EEA Agreement, including the preparation of new legislation and assistance in providing input into EU decision making. The EFTA Statistical Office in Luxembourg contributes to the development of a broad and integrated European statistical system.
- The EFTA Surveillance Authority (ESA) monitors compliance with European Economic Area (EEA) rules in Iceland, Liechtenstein and Norway. It has powers that are similar to those of the European Commission regarding the surveillance and application of EEA law.
- The EFTA Court, based in Luxembourg, has the competence and authority to settle internal and external disputes regarding the implementation, application or interpretation of the EEA agreement. Its jurisdiction corresponds to that of the Court of Justice of the European Union in matters relating to the EEA EFTA countries.
India- EFTA relations
- Economic trade: Over the past two decades, the total trade between the EFTA States and India has been growing steadily. In 2022, the combined EFTA-India merchandise trade surpassed USD 6.1 billion.
- The primary imports to the EFTA States consisted of organic chemicals (27.5%), while machinery (17.5%) and pharmaceutical products (11.4%), excluding gold, constituted the main exports to India.
- Services trade and foreign direct investment have also reached substantial levels.
- Both sides appreciated the ongoing discussions on India-EFTA Trade and Economic Partnership and Bilateral Investment Treaty between India and Switzerland.
Key Features of Free Trade
India and the members of the European Free Trade Association (EFTA) held 21 rounds of talks over 16 years to clinch the broad-based Trade and Investment Agreement. Here are key facts about the trade pact:
- Boost to trade, investment : India is the EFTA’s fifth-largest trading partner after the European Union, the United States, Britain and China, with total two-way trade touching $25 billion in 2023, its trade ministry estimates. Its exports to the EFTA touched $2.8 billion and imports were about $22 billion during that period. With a population of 13 million and a combined GDP of more than $1 trillion, the EFTA nations are the world’s ninth-largest merchandise trader and its fifth largest in commercial services.
- Swiss companies to benefit : Swiss manufacturers of machinery, luxury items like watches and transport are expected to benefit, the Swiss government has said. India has invited Swiss transport companies to invest in the Railways. The pact allows EFTA countries the opportunity to export processed food and beverages, electrical machinery, and other engineering products to a potential market of 1.4 billion people at lower tariffs. The pharmaceutical and medical devices industry within the bloc could also benefit.
- India-Swiss relations : India hopes the pact will improve trade ties with Switzerland, the biggest partner in the EFTA. India is its fourth-largest trading partner in Asia and the largest in South Asia. More than 300 Swiss companies such as Nestle, Holcim, Sulzer, and Novartis, apart from banks such as UBS operate in India, while Indian IT majors TCS, Infosys and HCL work in Switzerland.
- No to data exclusivity :India earlier rejected the four nations’ demand for the pact to include provisions on “data exclusivity” that would make it difficult for its drug companies to produce generic variants of the off-patent drugs, Indian officials said. India and the EFTA also agreed to largely keep “sensitive” farm products and gold imports out of the pact.
- Investment commitment : EFTA countries committed to invest $100 billion in India and aiming to generate 10 lakh jobs over a 15-year period in exchange for tariff concessions for their pharma, chemical products and minerals, among other items.
Why did India push for investment commitment in the EFTA deal?
- India runs a trade deficit with most of its top trade partners, except for the US. This is also true in the case of FTAs that India has signed in the past, especially with ASEAN nations. While the ASEAN FTA did help India secure intermediate products, India’s increasing average tariffs (18 per cent) have meant that India’s FTA partners have better access to the Indian market after tariff elimination. Average tariffs in developed nations hover around 5 per cent.
- The India-EFTA deal is also expected to widen the trade gap. Even as the legality of the $100 billion investment commitment by EFTA remains unclear, such investment could help India generate economic activity and jobs in exchange for giving market access to EFTA.
- Moreover, India could see gains in the services sector and the deal could help India power its services sector further.
Which Indian sectors could EFTA investment benefit?
- The funds from the EFTA region include Norway’s $1.6 trillion sovereign wealth fund, the world’s largest such ‘pension’ fund, which posted a record profit of $213 billion in 2023 on the back of strong returns on its investments in technology stocks.
- India could see investment flow into the pharma, chemical sectors, food processing and engineering sectors. EFTA is also looking at joint ventures (JVs) in the above-mentioned sectors that will help India diversify imports away from China.
- Currently, India’s imports of chemical products from China in FY23 alone stood at a massive $20.08 billion. It imported $3.4 billion worth of medical and bulk drugs worth nearly $7 billion from China, as per commerce and industry ministry data.
Limitations of the pact
- Switzerland’s policy of tariff-free entry for all industrial goods from any country, with effect from January 1, would affect benefits to Indian companies, Global Trade Research Initiative, a think tank based in New Delhi, said in a report. India is likely to keep facing difficulties in exporting farm produce to Switzerland due to a complex web of tariffs, quality standards, and approval requirements, analysts warned