India and the UAE signed the Comprehensive Economic Partnership Agreement (CEPA) on 18th February 2022. It is the first major free trade agreement signed by India in the last decade. It is also India’s first bilateral trade agreement in the Middle East and North Africa (Mena) region.
The CEPA is strategically important to India. UAE is currently India’s third largest trade partner and second largest export destination after USA. UAE is also eighth-largest investor in India, being invested USD 11 billion between 2020 to 2021.
According to the government of India, CEPA is expected to increase the bilateral trade from USD 60 billion to USD 100 billion in the next 5 years. India is negotiating a number of free trade agreements with different countries like UK, EU, Australia, Israel and Canada. CEPA covers almost 90% of the bilateral trade between India and UAE.
The categories broadly covered under the CEPA are
The CEPA may come into force by early May 2022 in India, and is expected to provide significant benefits to businesses in the form of enhanced market access and reduced tariffs.
India has been offered a duty elimination on over 97% of its tariff lines, which corresponds to 99% of India’s exports in terms of value over the last decade. While about 90% of India’s exports to UAE will attract zero duty from the day of entry into force of CEPA, about 9% of India’s exports will be subject to zero duty in a phased manner.
Market access in services has been offered by UAE to India in about 111 sub-sectors including business services / professional services which include computer accounting, real estate, advertising packaging, telecom services, construction among others.
CEPA requires that preferential tariffs can be claimed at the time of clearance only after production of certificate of origin issued by a government agency of the relevant country. Also, to avoid routing of products manufactured in third countries to India via UAE, 40% value addition requirement has been provided on exporting items.
This allows for automatic registration and marketing authorization of Indian generic medicines in the UAE, provided such medicines are approved in any of the developed countries such as European Union, UK, Canada and Australia.
The Government of India believes that CEPA will create jobs, open new markets for India’s startups, MSME’s, traders and all sections of businesses, make businesses more competitive and boost India’s economy. Moreover, since UAE is a trading hub, the CEPA is expected to provide market entry points to Africa, Middle East and Europe.
Currently, the imports into India are much higher than India’s exports to UAE, demonstrating trade imbalance between both the countries. It remains to be seen if Indian businesses will be able to turn CEPA into an opportunity to not only increase exports to UAE but also other markets in Middle East and Africa.
