Booming trade: India-UAE FTA utilization surges in December

COOs that impose tariff concessions under a bilateral free trade agreement (FTA) can be reflected in actual exports with a lag and are a strong indicator of the utilization of the agreement.

India’s outbound shipments under the Comprehensive Economic Partnership Agreement (CEPA), which came into effect on May 1, had surpassed $5 billion by December, according to government data, while the overall tariff reduction benefit was $254 million. Since oil is not part of a comprehensive free trade agreement, non-oil data are being considered for comparison.

This accounts for about a third of the Gulf state’s non-oil exports, with zero-tariff access for key industries such as textiles, gems and jewellery, electrical machinery and automobiles.

“Under CEPA, Indian exporters get huge tariff benefits. This is a source of competitive advantage for exports to the UAE. The use of CEPA is on the rise and may increase further,” said a commerce ministry official, speaking on condition of anonymity.

“The Ministry of Commerce is working to raise awareness. Regular industry interactions and ongoing end-to-end hand-holding are taking place to help Indian exporters utilize CEPA,” the official added.

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Between October and December, 17,005 COOs worth $3.33 billion were issued to exporters, compared with non-oil exports of $5.45 billion in the quarter. Between July and September, 12,875 COOs worth $1.31 billion were issued against non-oil exports worth $5.83 billion.

In December, worth 6,111 COOs ¥$1.1 billion was issued, almost triple the 2,316 COOs worth $310 million in June. COOs issued in December were led by textiles with certificates worth $303 million, followed by gems and jewelry at $185 million, edible fruits and nuts at $90.61 million, live animals at $88.09 million, automobiles at $38.79 million and footwear at $36.34 million.

The COO issued to Indian exporters certifies that the goods meet certain criteria to be considered as originating in India.

The agreement lists 17 Indian agencies besides the Export Inspection Council (EIC), including the Spices, Coir and Tobacco Board, to digitally issue certificates of origin to exporters to facilitate faster customs clearance and trade. India’s total non-oil exports to the UAE fell 12 percent to $1.9 billion in December, pointing to weakening global demand amid recession fears.

UAE is a transshipment hub. However, looking at the June-December period, while India’s global exports rose 3.07% to $249.43 billion, exports to the UAE rose 11.2% to $17.75 billion. India’s global non-oil exports fell 2.75 percent to $197.98 billion in the June-December period, data showed, while exports to the UAE rose 4.6 percent to $13.34 billion.

“This shows that the India-UAE CEPA has acted as a buffer against sluggish global demand, and the strong data on COO issuance can only confirm this,” said another government official, speaking on condition of anonymity.

The agreement immediately removed 90% of customs duties (by value) on Indian exports to the UAE, covering industries including gems and jewellery, textiles, leather and engineered products.

Jewelry, electrical machinery, automobiles, grains, machinery and mechanical appliances are the fastest growing products under CEPA, with export growth rates of 18%, 28%, 35%, 39% and 17% respectively. Other high-growth industries included sugar and confectionery, tea and flavors, essential oils, miscellaneous chemicals and staple fibers, which grew by 70%, 49%, 43%, 43% and 54%, respectively.

Meanwhile, steel exports to the UAE fell 39% to $646 million in the December quarter. Officials said that figure would grow given that export duties were removed in November.

Also, India’s iron ore exports surged after the government removed export duties on steel and iron ore. Exports of iron ore and chemicals to China jumped tenfold to $153 million in December from $14.26 million in November when the government lifted export duties.

The agreement was signed on February 18, a record 88 days. It is the first major bilateral free trade agreement signed by the Narendra Modi-led government and could benefit $26 billion worth of Indian goods that are subject to a 5% import duty from the UAE.