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India UAE CEPA: A win win situation

India-UAE CEPA: A win-win situation

India-UAE CEPA: A win-win situation
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By Najib Shah  Feb 23, 2022 11:26:01 PM IST (Updated)

CEPA is expected to generate 10 lakh jobs across multiple labour-intensive sectors. Major sectors like gems and jewellery, textiles, leather, footwear, furniture, agriculture and food products, plastics, engineering goods, pharmaceuticals, medical devices, sports goods etc. are expected to be beneficiaries of the CEPA.

The announcement of an India-UAE Comprehensive Economic Partnership Agreement (CEPA) was always on the cards. What was not, was the breath-taking speed in which the agreement has been finalised. As Prime Minister Narendra Modi mentioned on the occasion of the signing on February 18, it is noteworthy that such an important agreement has been concluded in a record time of less than 3 months.

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The agreement is said to be 881 pages long. Despite the blaze of publicity following the signing of the agreement, the text of the CEPA is not yet in the public domain. All the reportage about the agreement is based entirely on the PIB releases.
The press release lists an impressive array of possible benefits. Union minister for commerce & industry, consumer affairs, food & public distribution and textiles, Piyush Goyal mentioned the agreement covered the widest array of subjects - from free trade to digital economy to government procurement and several other strategic areas of mutual interest.
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CEPA is expected to generate 10 lakh jobs across multiple labour-intensive sectors. Major sectors like gems and jewellery, textiles, leather, footwear, furniture, agriculture and food products, plastics, engineering goods, pharmaceuticals, medical devices, sports goods etc. are expected to be beneficiaries of the CEPA.
It has been mentioned that there are many firsts in the CEPA agreement. It is said that UAE had agreed to automatic registration and market authorization for Indian medicines in case of their regulatory approval in developed countries such as the USA, EU, UK and Japan.
It has been reported that UAE has offered immediate market access at zero duty from day one of the entry into force of the agreement, to products accounting for 90 percent of India's exports to UAE in value terms. The minister emphasised that ‘this is a win-win agreement.
Thus, there is a lot that appears commendable in the CEPA. However, the devil in all such agreements is in the details. And the details will not be known till the agreement is in the public domain.
As India has learnt the hard way, a key ingredient in all such free trade agreements is the Rules of Origin (RoO). Basically, the rules prescribe the criteria to determine the national source of a product. Since the benefit is to be extended only to the goods originating from the partner country, these rules are of critical importance. This is more so in the case of a country like UAE which has little manufacturing expertise and is basically a trading hub. Further, UAE has at last count at least 45 free trade zones with relaxed norms.
Minister Piyush Goyal has spoken of 'stringent rules reflecting requirements for substantial processing of up to 40 percent value addition’. Undoubtedly 40 percent is high-however details of what constitutes value addition will have to be seen in the CEPA for a better appreciation.
Given the large-scale concerns about the misuse of RoO, the Central Board of Indirect Taxes & Customs (CBIC) had in 2020 amended certain provisions of the Customs Act and introduced The Customs (Administration od Rules of Origin under Trade Agreement Rules (CAROTAR). This was done primarily to strengthen the certification procedure and ensure benefits are extended to eligible FTA imports only.
Mention has been made of the possible imposition of safeguard duties in the event of a surge in imports. This is a standard WTO approved prescription. For instance, in India's trade agreement with Singapore, another similarly placed country like UAE, Article 2.9.1 of the Comprehensive Economic Cooperation Agreement (CECA) permits the imposition of bilateral safeguard measures.
In the case of CEPA, given that the tariff in UAE (and in fact in the entire GCC) is just 5 percent for most of the goods, the benefit for Indian exports will be minimal. The CEPA hopefully will address non-tariff barriers- especially sanitary and phytosanitary measures.
The UAE market is small. It acts primarily as a gateway, for the bigger African market. It is not very clear whether there will be any added benefits for Indian exporters exploring the African continent because of the CEPA.
However, a typical comprehensive agreement is much more than the goods. It encompasses services, investment cooperation, mutual recognition of professions, movement of people. With investments in the range of $ 11.67 billion, UAE is the ninth biggest investor in India. Given the sovereign funds at the disposal of the UAE, there is huge potential here. The combined investments of NRI's in UAE is estimated to be around $55 billion -again an area of potential growth.
Dubai has a flourishing trade with China as also Pakistan. Though this trade need not necessarily be suspicious, we should be cognizant of this fact. This is especially given the fact that we are wary of imports from China. The CEPA should not become a medium for such imports.
Dubai is a huge property market. A major financial centre. We should also be aware of the fact that in its April 2020 report on UAE, the intergovernmental Financial Action Task Force (FATF) expressed concerns about Dubai. The Emirate was placed under observation to ensure that it fully implements the anti-money laundering legislation and improves cross border cooperation.
Most cases of smuggling detected in India, have a Dubai link. It is believed that many a wanted criminal operates from there. In this background, it is imperative that we should ensure that CEPA does not become a money-laundering mechanism. Hopefully, the CEPA has sufficient safeguards.
The success of the CEPA will depend entirely on its implementation and the cooperation between the two countries. There is undoubtedly a huge potential. The goal that the CEPA would increase the total value of bilateral trade to over $100 billion within five years is achievable.
— Najib Shah is the former chairman of the Central Board of Indirect Taxes & Customs. The views expressed are personal.
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