Comprehensive Economic Partnership Agreement (CEPA)
The India-UAE Comprehensive Economic Partnership Agreement (CEPA) that became effective on May 1, 2022, is a radical change in the bilateral economic relationships between the two countries. The pace at which this agreement was negotiated is highly remarkable, as the agreement took only 88 days between its inception and finalisation, which is the shortest period in the history of agreements between the two nations, in their determination to integrate their economies. The CEPA creates one of the largest trade corridors in Asia, providing a framework that transcends free trade agreements based on goods alone and includes services, investment, intellectual property rights, digital trade and government procurement. This broad-based strategy makes the economic partnership more holistic and aimed at leveraging the complementary comparative advantages of the two economies and generating significant new trade diversification and development possibilities.
The strategic significance of the India-UAE CEPA could not be overestimated. Before implementation, the UAE was already the third-largest trading partner of India to which bilateral trade worth approximately $59 billion was available in 2019-20. The agreement has established a challenging goal of raising the bilateral trade in goods to 100 billion US dollars five years after signing, and enhancing trade in services to 15 billion US dollars after five years. These two alliances bring together the manufacturing strength of India and the strategic location of the UAE as a bridge to the African, European, and Middle East markets to generate synergistic advantages that go well beyond the bilateral trade relationship. The tariff liberalisation schedules that are woven into the CEPA comprise the heart of how these trade expansion objectives are likely to be done, and thus are essential to comprehend the potential economic impact of the agreement.
ANALYTICAL FRAMEWORK
In this analysis, we are using a systematic method of classification of tariffs using the schedules of elimination as laid down in the CEPA accord. The system of classification is based on four different categories, which are Immediate Elimination, Phased Elimination (5/10 years), Phased Reduction (partial tariff cuts) and Exclusion List (no concessions) classification. It is the framework on which a comparative study of the market access commitments of the two countries is systematic, and the balance of concessions is evaluated in the agreement. The analysis will make use of governmental data available in both India and the UAE, as well as trade statistics provided by international organisations and research institutes. The data on tariff lines is designed based on the 8-digit Harmonised System (HS) classification, which allows a clear product classification and correct percentage distributions among the elimination timelines. Such a methodological rigour can be an effective basis on which to assess the economic impact of the tariff liberalisation programme of the CEPA.
UAE TIMELINE ON REMOVING TARIFFS ON INDIAN EXPORTS
The UAE has offered a very ambitious offer of market access to Indian exports by pledging to do away with tariffs on 97% of its tariff lines, which translates to a remarkable 99% of the value of Indian exports to the UAE. This broad commitment reflects the strategic interest of the UAE in solidifying the economic relationship with India and taking advantage of the manufacturing capacities of India to diversify its imports. The offer is especially important in the sense that it spans almost the whole range of existing Indian exports to the UAE and opens up possibilities of diversifying the export portfolio to new product lines.
Table: Tariff Elimination Schedule of Indian Imports in the UAE.
|
Elimination category |
Percentage of tariff lines |
Number of products |
Timeline for full implementation |
|
Immediate Elimination |
80.3% |
6,090 products |
From May 1, 2022 |
|
Phased Elimination (5 years) |
4.4% |
1,089 products |
By 2027 |
|
Phased Elimination (10 years) |
2.4% |
180 products |
By 2032 |
|
Phased Reduction |
0.5% |
35 products |
Up to 50% tariff reduction |
|
Exclusion List |
2.4% |
187 products |
No duty elimination |
With this commitment, 90 per cent of Indian exports to the UAE in terms of value became duty-free as soon as it was implemented, providing Indian exporters with an immediate competitive advantage. The zero-duty access includes labour-intensive industries, such as gems and jewellery, textiles, leather, footwear, plastics, furniture, agriculture, engineering products, pharmaceuticals, medical equipment, and automobiles. The direct impact of the tariff that is to be eliminated is that, in spite of the fact that these sectors are the biggest employment generators, employment and economic development are highly supported.
INDIA TARIFF ELIMINATION SCHEDULE FOR UAE EXPORTS
India provided instant tariff removal on 64.6 per cent of tariff lines (7,694 products), and the UAE exporters will have good initial access. India did not follow the same asymmetrical approach as the UAE, as it is under a different level of development and industry. The rest of the goods will be eliminated gradually over the span of 5-10 years or reduced partly, giving time to the sensitive industries to adjust to the competition.
The Indian exclusion list is bigger, including 9.7 per cent of tariff lines (1,157 products), primarily in agriculture and sensitive manufacturing. Food Security, employment, and strategic industries are guarded by items such as dairy, cereals, tea, coffee, sugar, jewellery, rubber, footwear, plastics, toys, automobiles and medical devices. This defensive position reiterates the fact that India is struggling to strike a balance between trade liberalisation and protection of its varied industrial base.
SECTOR-SPECIFIC ANALYSIS OF TARIFF COMMITMENTS
The CEPA provides different results in key industries. The UAE, scrapping its 5% duty on gems and jewellery, was the greatest beneficiary, but it constrained liberalisation with the Tariff Rate Quota on gold and jewellery, with the liberalisation of rules of origin. Another labour-intensive industry, textiles and apparel, was also helped by the fact that it saw the immediate removal of duties on Indian garments, boosting a 1.5-billion-dollar export base. On the other hand, the automotive industry demonstrates the defensive approach of India- the UAE has fully liberalised its market to Indian cars and parts, but India has kept out most automobiles to protect its domestic market. All these sectoral obligations emphasise the Indian strategy of encouraging labour-intensive exports such as gems, textiles, and footwear, and safeguarding sensitive sectors such as automobiles, agriculture and some manufactured goods.
IMPLEMENTATION FRAMEWORK AND RULES OF ORIGIN
In the BEM, a powerful framework of implementation is established to prevent the exploitation of the program, and only the true Indian and Emirati producers will have access to the tariff benefits. At the core of this is the stringent rules of origin, which, as a rule, demand a minimum of 40% value addition, and this is determined by either build-up or build-down techniques. Provisions of the sector are flexible where they are most needed, such as gems and jewellery have lower thresholds (3-7%), to reflect the high intrinsic value of the raw material; steel products may have a strict melt and pour requirement to prevent third-country routing; and agricultural goods may be covered by wholly obtained requirements to discourage simple repackaging. Such regulations are supported by more stringent certification and verification procedures, such as profit disclosure, required record keeping and certification by a particular authority (17-18 agencies in India and the Ministry of Economy in the UAE).
On the governance part, there is a Joint Committee, supplemented by subcommittees on services, goods, rules of origin, and customs to facilitate the implementation, and they also provide a dispute resolution mechanism. The balance between openness and protection is provided by safeguard provisions, which permit either party to suspend concessions or increase tariffs to MFN rates in cases where an import surge poses a threat of severe harm to domestic industries. The agreement encourages cooperation among SMEs by a special committee, facilitates customs because it allows invoice-based declarations by approved exporters, and sets up specific deadlines for resolving disputes. Taken together, all these mechanisms are necessary to see the effective operation of the tariff commitments made by CEPA, so as to promote trade growth and secure vulnerable sectors against disruptive shocks.
ECONOMIC IMPACT AND STRATEGIC SIGNIFICANCE
Since its coming into effect in May 2022, the India-UAE CEPA has impacted trade positively in a quantifiable way. Bilateral merchandise trade increased 16.4% in 2022 to 83.64 billion in 2023-24 as the global trade decreased by 5%. The exports to the UAE have diversified in India beyond its traditional products with the high growth in engineering products (26.7% share), electronics and smartphones (32.5% growth, including $2.57 billion in smartphones), chemicals, pharmaceuticals and even aerospace manufacturing, which hit $2 billion in FY 2024. Utilisation of preferences is high: over 240,000 Certificates of Origin have been issued since 2022, representing almost 20 billion dollars in exports, and 25 per cent of this increase in 2024 alone.
Strategically, CEPA enhances India’s policy of Link West and sets a precedent for future trade agreements, whereas in the case of the UAE, it reinforces hydrocarbon-free diversification and establishes itself as a business hub. The deal supports larger plans as well, including the India-Middle East-Europe Economic Corridor (IMEC), announced in 2023, which will reduce shipping time to Europe by 40 per cent and construct energy, telecom, and green hydrogen infrastructure. CEPA and IMEC work together to establish policy and physical structures of greater regional integration. Looking into the future, the two partners have a goal of achieving 100 billion in non-oil, non-precious metals trade by 2027-2030 and bilateral trade of 200 billion in all by 2030. It is projected that this growth will be further enhanced by phased tariff eliminations, Bharat Mart in Jebel Ali and the ongoing institutional cooperation.
CONCLUSION
The tariff schedules in the India-UAE CEPA are a well-balanced trade liberalisation strategy that balances the desire to achieve immediate access to the market with the relevant phase-in plans in more delicate industries. The form of the agreement, where 80.3% of the UAE tariff lines and 64.61% of the Indian tariff lines turn duty-free right away, reflects a serious intent to accelerate the growth of trade and allow more time to adjust to an environment of higher competition.
This asymmetry in the tariff commitments is analogous to the economic structure and the level of development in the two nations, where India has retained a somewhat higher level of protection of the vulnerable sectors by a more extensive list of exclusions (9.72 per cent of tariff lines against the 2.4 per cent in the UAE). This moderate stance has helped the two nations to be ambitious about their trade agenda without jeopardising their domestic sectors that are weak.
The initial success of the CEPA in enhancing bilateral trade and diversification of trade baskets shows that the tariff liberalisation schedule of the CEPA succeeds in reaching its expected economic goals. Since the arrangement remains in force and more tariff lines will be duty-free under the 5-10 years phase-in timetables, the economic gains will probably intensify and increase. CEPA has created a solid basis of economic partnership in the long term between India and the UAE, and it has set a precedent for future trade accords and contributed substantively to the strategic economy of the two nations.
