India-UAE free trade pact to favour labour-intensive products, service providers

India hopes to gain greater market access in the UAE for labour-intensive items such as textiles & apparels, gems & jewellery, chemicals & pharmaceuticals and engineering goods as well as higher mobility for its service providers under the India-UAE free trade agreement scheduled to be finalised on Friday.

“Import duties will be brought down or eliminated on all items traded between the two countries except a small negative list of products that would be kept out of the pact. Care has been taken to ensure that third country exports are not routed through UAE into India by putting in place adequate rules of origin restrictions,” a person tracking the matter told BusinessLine.

The free trade pact, known as the India-UAE Comprehensive Economic Partnership Agreement (CEPA), is to be signed at a virtual summit between Prime Minister Narendra Modi and Abu Dhabi Crown Prince Sheikh Mohamed bin Zayed al Nahyan on Friday.

Bilateral ties

“The two leaders will also discuss bilateral cooperation and exchange views on regional and international issues of mutual interest,” according to a statement issued by the Ministry of External Affairs on Thursday.

UAE was India’s third largest trading partner in 2020-21, after China and the US, with imports valued at $26.6 billion and exports at $16.7 billion. It is one of the top suppliers of oil to India and also exports precious metals, gems and jewellery, minerals, chemicals and wood products.

Mutual recognition pacts

In the area of services, India hopes to sign mutual recognition agreements in various sectors for smoother movement of professionals between the two countries.

The India-UAE CECA is also expected to speed up India’s proposed free trade agreement with the GCC countries that include Saudi Arabia, Bahrain, UAE, Qatar, Kuwait and Oman. “A free trade pact with the GCC is of strategic importance to India as it may strengthen its energy security. Since UAE is an influential member of the group, a free trade pact with the country may speed up a similar pact with the bloc,” the source pointed out.

While India’s gains in goods is likely to be limited as the UAE has import duties at 5 per cent or below for most items, it is expected to get greater market access certain items that are labour-intensive and could generate employment in India. These include gems & jewellery, apparel and textile, agriculture & processed food, footwear, electrical & electronics, organic chemicals, paper and paper products, auto parts, iron and steel and engineering.

There have been apprehensions from certain quarters of a possible misuse of the FTA by manufacturers in third countries, including China who could ship their items to India through the UAE at concessional duties under the India-UAE FTA. However, adequate rules of origin norms and proper issuing of certificates act are likely to act as strong checks, the source said.

Target areas

The CEPA will cover a multitude of areas including goods, services, investments, digital trade, intellectual property rights and government procurement, the source said.

“Many components in sectors such as digital trade, government procurement and IPRs will be on a best endeavour basis with not many binding commitments,” the source added.

UAE has investments worth $11 billion into India since 2000 and is among the top 10 investors for the country.