The Free Trade Agreement between India and the EFTA states, Norway, Iceland, Liechtenstein and Switzerland (TEPA for short), marks a significant milestone for trade relations between these parties. After 21 rounds of talks over a total of 16 years, these four small European states have committed to investing 100bnUSD in India, thus creating one million jobs within 15 years. In return, India will remove its high tariffs on 95.3% of commercial imports, excluding gold, either immediately or over time. The agreement was signed on 10 March 2024 and could come into force as early as autumn 2025.
Economic perspectives
India is considered one of the fastest-growing major economies in the world and, with 1.428 billion inhabitants, surpassed China as the most populous country in the world in April 2023. Economic growth in 2023 was 8.4%, and the country is set to continue to see average economic growth of between 6% and 9% into the future. For Swiss companies the agreement means easier access to this huge market, in which over 300 Swiss companies such as Nestlé, Holcim, Sulzer and Novartis are already active.
Globally, Switzerland and India are not major trading partners, and their bilateral trade amounted to around 17.7bnCHF in 2023. Switzerland primarily exports precious metals, machinery, pharmaceuticals and chemicals to India, and imports mainly chemicals, textiles, precious metals and agricultural products in the opposite direction.
However, SECO expects that the abolition of India’s high tariffs will lead to additional exports worth around 170mCHF per year. Sectors such as infrastructure, construction, luxury goods, digitalisation, clean technologies and electromobility are expected to benefit from this agreement. But Swiss manufacturers of machine tools, watches, chocolate, pharmaceuticals and medical products can also leverage easier market access and lower import duties to compete.
Finally, India offers many companies the opportunity to pursue a ‘China+1 strategy’ and therefore reduce their dependence on China.
New opportunities are also emerging for the Swiss economy in the services sector. Swiss financial service providers will benefit from clear and transparent deadlines for granting licences. In addition, the permissible share of foreign capital in the insurance sector will be increased to up to 49% and in the banking sector from 51% to 74%. India also commits to allowing machinery installation and maintenance personnel to stay in the country for up to 3 months per year.
Another important aspect of the agreement concerns the protection of intellectual property. There are improvements in the areas of patent law, patent procedures and protection of ‘Swissness’. However, there are concerns that some aspects go beyond the standards of the World Trade Organization and could weaken protection against abusive patents.
Improvements and critical aspects
For 84.6% of Swiss exports, all tariffs will be eliminated after the tariff elimination periods of 0 to 10 years have expired. In addition, 10.1% of exports will receive partial concessions, resulting in a 50% reduction in tariffs with transition periods of up to 10 years. Some sectors such as dairy, soya and sensitive agricultural products and especially gold remain excluded from the agreement.
Certain uncertainties arise from the ‘Customs Administration Rules of Origin under Trade Agreements (CAROTAR)’. These special import rules, which India introduced in 2020, require Indian importers to prove the origin of the imported goods with documents that may in some cases go beyond the EFTA exporter’s proof of origin provided for in TEPA. In addition, India is a complex country with significant regional differences that must also be taken into account in future processing.
Future prospects
Overall, the Free Trade Agreement between India and EFTA represents an opportunity for Swiss companies to open up new markets, reduce trade barriers and establish long-term partnerships in one of the world’s most dynamic economic areas. The Free Trade Agreement is expected to enter into force after the ratification process is completed in autumn 2025, unless there is an optional referendum.
In our next post, we will take a closer look at the challenges posed by this new agreement and highlight what Swiss companies need to consider.
Webinar recording
You can find a recording of our TEPA webinar from 14 May 2024 here:
