India-EFTA trade negotiations: A path to $100 bn opportunity?

A long-anticipated free trade agreement (FTA) is under negotiation between India and the European Free Trade Association (EFTA)—comprising Switzerland, Norway, Iceland, and Liechtenstein. These countries have been engaged in talks for 16 years, aiming to forge a mutually beneficial deal. India, known for its exports of chemicals, textiles, steel, and other manufactured goods, is poised to gain enhanced market access. On the flip side, the quartet of nations is seeking duty-free entry into the Indian market for Swiss chocolate, among other products. Additionally, the agreement includes a promising investment of $100 billion in India, although the specifics of this investment remain confidential.

What does the FTA promise?

The Trade and Economic Partnership Agreement (TEPA) has been under negotiation since 2008. However, the negotiations reached a stalemate due to issues such as intellectual property rights, trade in services, and rules of origin. The major discussion points for the parties involved in this TEPA were: trade in goods, trade in services, rules of origin, intellectual property rights, investment promotion and cooperation, trade facilitation, and sustainable development. Of these, the most beneficial for India is the investment in the country along with trade in goods and services. India aims not only to secure the $100 billion investment from the bloc but also to gain preferential access for manufacturing goods within the bloc.

Figure 1: India’s imports and exports from EFTA (in $ mn)

Source: DGCI&S

Trade dynamics between India and EFTA

The trade between EFTA and India is interesting. The trade data from the Ministry of Commerce shows that India is importing a significant amount from the EFTA countries. Although exports from India are increasing, the decline in imports is more than interesting to observe. As of 2022-23, the imports increased by a massive 20 per cent, whereas the exports increased only by a mere 7 per cent. Therefore, India, as a potential exporter, has some scope to increase exports to the EFTA. The major exports of India to the bloc are chemicals, followed by textiles and apparel. The textile sector may potentially gain some benefits—either through the TEPA or through the $100 billion investment.

Opportunities for diversification

India's export destinations for textiles and garments have so far been the EU and the US, which constituted more than 50 per cent of the share. As it is already trying to find new destinations for textile goods and other manufacturing goods, the current TEPA, if finalised, can be of significant help to the country that is trying to forge new trade relations like the UK FTA, Oman FTA, and India-Middle East-Europe Economic Corridor (IMEC), which can also open a plethora of new opportunities for the country's textile exports.

From the textile segment, India exports largely woven and knitted apparel to the EFTA bloc. The share of apparel imports from the total textile imports from India is as high as 75 per cent, and this has been the approximate trend for the last 10 years.

Figure 2: Share of apparel imports in EFTA's total textile imports from India (in %)

Source: EFTA, F2F analysis

This share is more or less the same and is equal to that of some textile exporters with whom the bloc has signed an FTA. Further analysis revealed an interesting trend. The EFTA has signed FTAs with countries like Indonesia and Singapore, which also place significant importance on the textile industry for their economy. However, through the current trade agreement, India may aim to narrow its trade deficit with the EFTA, which stood at $14.8 billion in 2023. Nevertheless, there might be certain issues that need to be examined before coming to a solid conclusion.

India's trade dominance without FTA

Although EFTA has signed FTAs with countries like Indonesia and the Philippines, both the overall and textile imports of EFTA from these countries are less compared to those from India, with which the bloc has no FTA in place. While the size of the economy and the development of sectors in the respective economies play roles in their total trade, India's textile trade volume is substantial. Therefore, if the FTA with EFTA is finalised, given the expectations India has for the manufacturing sector and goods, the textile sector might also see benefits. EFTA, which is distinct from the European Union (EU), already boasts 29 free trade agreements and economic partnership agreements with over 40 countries. If the current agreement with India is finalised, not only will EFTA see benefits, but India will also stand to gain.

Conditional advantages? Navigating the complexities of a potential EFTA deal

While India aims to secure necessary market access for its products within the bloc, several challenges remain. Despite India's aspiration for a $100 billion investment from EFTA, the bloc views this figure as a target rather than a firm commitment. Moreover, ongoing negotiations around rules of origin, trade disputes, and intellectual property rights add layers of complexity. A recent development has seen Switzerland eliminate duties on manufactured goods from all industries, potentially undermining the benefits India could have gained. The long-term outcomes of these negotiations remain to be seen, underscoring the situation's uncertainty.

ALCHEMPro News Desk (KL)