Switzerland-led four-member European Free Trade Association (EFTA) and India have signed a Trade and Economic Partnership Agreement (TEPA), which aims to remove barriers to trade between them. TEPA is a free trade deal in all but name, as it requires both parties to lower import tariffs, which a government levies to protect its industry. Globally, developing economies are hesitant to forego this sovereign power, for the fear of getting swamped by products from advanced economies. While an argument in favour of such free trade is that people will get a better choice, the counter-argument would be the inability of the developing economy to pay for such imports, which would lead to balance of payments issues.
India faced a similar issue with EFTA. For example, Switzerland, India’s largest trader in EFTA, exported $16 billion worth products. Of this, $13 billion was for the import of gold. The rest of the $3 billion was for the import of other products such as machinery, chocolates, watches, among others. India exported products, mostly raw materials, worth $2.46 billion to Switzerland. With a free trade in place, well-known Swiss manufactured goods could overwhelm India, without offering a similar advantage for Indian products, which are mostly raw materials.
This deal, however, uniquely resolves this issue by making it mandatory for the advanced EFTA economies to invest $100 billion in India in the next 15 years. The investment does two things — it covers India’s import bill for a few years as the EFTA member countries could reinvest its receivables from Indian imports in India itself. As they invest in India, the Indian industry could transform itself into a mature economy that has more products to export.
The free trade with EFTA augurs for the Indian manufacturing industry as the latter could access their technology at a much lesser cost. As EFTA member countries offered non-discriminatory treatment to Indian services, including computer-related sectors, Indian tech giants could make deals with global banking giants and tech companies. Overall, the India-EFTA deal is a win-win proposition, which could offer a blueprint for India’s trade negotiations with other countries.
