COMPREHENSIVE ECONOMIC AND TRADE AGREEMENT (CETA)
1. Context
The India-U.K. Comprehensive Economic and Trade Agreement (CETA) came into effect on July 15, a year after it was signed. At the same time, the India-U.K. Double Contribution Convention (DCC) also comes into effect. The trade deal has been hailed by both sides, with Commerce Secretary Rajesh Agrawal even calling it the “gold standard” of India’s free trade agreements.
2. What Trade Benefits Does India Receive Under CETA?
- According to India's Chief Trade Negotiator, Rajesh Agrawal, the Comprehensive Economic and Trade Agreement (CETA) is notable not only for its extensive coverage but also for the substantial market access it provides.
- The agreement goes beyond addressing a broad range of tariff and non-tariff measures by offering meaningful concessions across several key sectors, making it one of India's most comprehensive trade agreements.
- Under the agreement, the United Kingdom has committed to eliminating customs duties on 96.8% of its tariff lines immediately after the agreement comes into effect. These tariff reductions account for approximately 97.7% of India's exports by value.
- In addition, tariffs on another 2% of tariff lines, representing nearly 1.8% of trade value, will be reduced through tariff-rate quotas.
- As a result, the agreement ultimately provides preferential market access covering 98.8% of tariff lines and approximately 99.5% of the total value of bilateral trade.
- The scope of CETA extends well beyond tariff liberalization. Spread across 30 chapters, the agreement includes provisions relating to digital commerce, government procurement, innovation, support for micro, small and medium enterprises (MSMEs), labour standards, environmental sustainability, and gender-related issues.
- It also establishes rules to address non-tariff barriers, including Sanitary and Phytosanitary (SPS) Measures and Technical Barriers to Trade (TBT), with the objective of ensuring that such regulations facilitate legitimate public policy goals without becoming unnecessary obstacles to international trade.
- Services trade constitutes another major component of the agreement and is particularly significant for India, where the services sector is a key contributor to economic growth and export earnings.
- Under CETA, the United Kingdom has provided enhanced market access by allowing Indian businesses to establish a commercial presence in sectors such as information technology and computer services, consulting, and environmental services.
- This enables Indian enterprises to expand their operations in the U.K. through branches, subsidiaries, or representative offices, thereby strengthening their participation in the British market
3. What is the Double Contribution Convention (DCC), and How Does It Benefit Indian Workers in the United Kingdom?
- A major achievement for India under the Comprehensive Economic and Trade Agreement (CETA) is the inclusion of the Double Contribution Convention (DCC).
- This provision is designed to prevent Indian professionals temporarily employed in the United Kingdom from making mandatory social security contributions in both countries simultaneously.
- Under the DCC, Indian employees who continue contributing to India's social security system, along with their employers, are exempt from paying social security contributions in the U.K. for a period of up to five years.
- The exemption was originally proposed for three years but was subsequently extended to five years during negotiations.
- Before the introduction of the DCC, Indian workers on temporary assignments in the United Kingdom faced the burden of contributing to social security schemes in both India and the U.K.
- Since most Indian professionals are deputed to the U.K. for periods not exceeding five years, they rarely remained in the country long enough to qualify for U.K. social security benefits. Under British regulations, workers generally need to contribute for at least 10 years before becoming eligible to receive pension and other social security benefits.
- Consequently, many Indian employees paid into the U.K. system without ever receiving any corresponding benefits because they returned to India before meeting the eligibility criteria.
- The DCC addresses this long-standing concern by exempting eligible Indian workers from U.K. social security payments during their temporary stay, provided they continue making the required contributions in India.
- This exemption is expected to cover nearly 90% of Indian professionals working in the United Kingdom, enabling them to retain around 23% of their salary that would otherwise have been deducted as U.K. social security contributions
4. What Benefits Does the United Kingdom Receive Under CETA?
- The Comprehensive Economic and Trade Agreement (CETA) provides the United Kingdom with substantial opportunities to expand its presence in the Indian market across both goods and services.
- While India has safeguarded certain strategically important and sensitive sectors from excessive foreign competition, the agreement nevertheless offers British businesses significantly improved access to one of the world's fastest-growing major economies.
- Under the agreement, India has committed to eliminating customs duties immediately on products representing 30.3% of bilateral trade value.
- Tariffs on another 47% of trade value will be phased out over a specified period, while products accounting for 12.1% of trade value will benefit from preferential tariff concessions through tariff-rate quotas.
- Overall, the agreement provides preferential access covering 89.5% of India's tariff lines, representing approximately 89.4% of the total value of bilateral trade.
- Among the sectors expected to benefit the most are several iconic British exports. The gradual reduction in import duties will make U.K.-made whisky more affordable for Indian consumers.
- Similarly, tariffs on British automobiles, engineering equipment, and a range of industrial products will decline, improving their competitiveness in the Indian market and creating new export opportunities for U.K. manufacturers.
- The agreement also strengthens market access for British service providers. India has agreed to liberalize several important service sectors, including accountancy, auditing, financial services, telecommunications, and environmental services.
- As a result, U.K.-based firms operating in these fields will be able to provide services to Indian clients under more favourable conditions, often without the need to establish a permanent commercial presence in India.
- In addition, India has committed to recognizing certain U.K. professional qualifications, particularly in the fields of law and accounting, thereby making it easier for qualified British professionals to engage with the Indian market and offer their expertise
5. Are There Any Unique Features of the CETA?
- In addition to its comprehensive coverage and extensive market access commitments, the Comprehensive Economic and Trade Agreement (CETA) contains several distinctive provisions that make it different from India's earlier free trade agreements.
- Among the most noteworthy are the provisions relating to automobile imports and government procurement, both of which represent significant policy developments.
- One of the landmark features of the agreement is India's decision to reduce import duties on automobiles from the United Kingdom.
- This is the first time India has agreed to provide preferential tariff treatment for imported passenger vehicles under a trade agreement.
- As notified by the Directorate General of Foreign Trade (DGFT) on 10 July, the agreement permits the import of 20,000 fully built petrol and diesel passenger vehicles from the U.K. during the first year at concessional customs duty rates ranging from 30% to 50%, depending on factors such as engine capacity and vehicle category.
- These preferential rates are substantially lower than the regular import duties, which generally range between 66% and 110%.
- The agreement also establishes a phased quota mechanism for automobile imports. The annual import quota for eligible passenger vehicles will gradually increase to 37,000 units by the fifth year of the agreement.
- Thereafter, the quota will progressively decline, eventually stabilizing at 15,000 vehicles annually from the fifteenth year onwards. During this period, the concessional tariff applicable to vehicles imported within the quota will also be reduced, reaching 10% by the fifth year and remaining at that level thereafter.
- Separate quota limits and tariff schedules have also been negotiated for electric and other alternative-fuel passenger vehicles, as well as for commercial vehicles, reflecting the diversity of the automobile sector.
- Government procurement is another area where the agreement introduces important changes. Under CETA, companies from the United Kingdom will be permitted to participate in procurement tenders floated by the Government of India.
- However, their participation will be subject to specific conditions, and they will be treated as Class-II local suppliers in eligible Central Government tenders, ensuring that domestic firms continue to enjoy preferential treatment in public procurement.
- At the same time, Indian businesses will benefit from improved access to the United Kingdom's government procurement market. Indian suppliers will continue to receive Class-I local supplier preference in the U.K., enabling them to compete more effectively for eligible public contracts.
- Nevertheless, this access is limited to procurement by non-sensitive Central Government departments and public utilities, while contracts awarded by central public sector enterprises (PSUs) and state or local government bodies remain outside the scope of the agreement.
- According to India's Ministry of Commerce, the arrangement grants Indian companies legal access to U.K. government procurement opportunities valued at approximately £90 billion (around US$122 billion).
- In return, India has opened procurement opportunities worth nearly US$114 billion to eligible British firms, creating a mutually beneficial framework for public sector contracting
6. Way Forward
One notable aspect absent from the India–U.K. Comprehensive Economic and Trade Agreement (CETA) is a dedicated investment commitment. Unlike some of India's recent trade agreements, CETA does not contain a provision requiring the United Kingdom to facilitate a specific level of investment into India over a defined period.
For instance, the Trade and Economic Partnership Agreement (TEPA) between India and the four member countries of the European Free Trade Association (EFTA) includes an investment-related commitment under which the EFTA bloc has agreed to facilitate US$100 billion in investments in India over a 15-year period. Similarly, the India–New Zealand Free Trade Agreement contains a provision whereby New Zealand has committed to facilitating US$20 billion of investment in India during the same 15-year timeframe.
|
For Prelims: Comprehensive Economic and Trade Agreement (CETA), Double Contribution Convention (DCC)
For Mains: GS II - International relations
|
|
Previous Year Questions
1. Consider the following countries:
1. Australia
2. Canada
3. China
4. India
5. Japan
6. USA
Which of the above are among the free-trade partners' of ASEAN? (UPSC 2018)
A. 1, 2, 4 and 5 B. 3, 4, 5 and 6 C. 1, 3, 4 and 5 D. 2, 3, 4 and 6
Answer: C
2. Increase in absolute and per capita real GNP do not connote a higher level of economic development, if (UPSC 2018) (a) Industrial output fails to keep pace with agricultural output. Answer: C 3. The SEZ Act, 2005 which came into effect in February 2006 has certain objectives. In this context, consider the following: (2010)
Which of the above are the objectives of this Act? (a) 1 and 2 only (b) 3 only (c) 2 and 3 only (d) 1, 2 and 3 Answer: A 4. A “closed economy” is an economy in which (UPSC 2011) (a) the money supply is fully controlled Answer: D 5. With reference to the “G20 Common Framework”, consider the following statements: (UPSC 2022)
1. It is an initiative endorsed by the G20 together with the Paris Club. 2. It is an initiative to support Low Income Countries with unsustainable debt. Which of the statements given above is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 Answer: C
|
Source: The Hindu
