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Business News/ Economy / ‘UAE trade deal one of the most utilized’

‘UAE trade deal one of the most utilized’

India’s utilization rate of FTAs has been historically low due to factors such as stringent rules of origin (ROO) requirements, documentation costs and lack of awareness regarding FTAs.

FTA utilization by developed countries averages 70-80%. (BLOOMBERG)

New Delhi: India’s utilization rate of its free trade agreement with the UAE, a crucial bit of data that indicates how much Indian exporters are benefiting from tariff concessions, is expected to be 50%, a government official said.

India’s utilization rate of FTAs has been historically low due to factors such as stringent rules of origin (ROO) requirements, documentation costs and lack of awareness regarding FTAs. Notably, MSMEs contribute nearly 40% of India’s exports, which means awareness among MSMEs regarding FTAS is crucial for better utilization.

India has 19 free trade agreements in place including six preferential trade agreements. India’s FTA utilization rate as per the Asian Development Bank, has remained under 25%, among the lowest in Asia. In contrast, FTA utilization by developed countries averages 70-80%.“India has shared the customs data with the UAE and has requested them to share their data. Corroboration of the data will reveal the exact FTA utilization rate and will help us zero-in on sectors where FTA stands under-utilized. But based on the number of certificates of origin issued, the UAE agreement will be one of the most used agreements," the official said.

The official FTA utilization number was expected to be published last month after exchange of data between the two countries.

“We are expecting 50% utilization based on the COO issued. Our main utilization is coming from the gems and jewellery sector. The 50% immediate benefit is significant, value wise. COO data is an early indicator. If we are issuing COOs this month exports would happen next month and that would reflect later," the official added. A COO issued to an Indian exporter certifies that the goods have met certain criteria considered as originating in India. COOs, which are mandatory to claim duty concessions under FTAs, and are a strong indicator of the utilization of the pact.

As per official data, the number of Preferential Certificates of Origin issued under the agreement with the UAE increased from 415 in May 2022 to 8,440 in March 2023. In total over 54,000 COOs were issued during those 11 months. According to a research report on India’s FTAs by Divesh Pandey and Meera Unnikrishnan brought out by IIM Ahmedabad, recent trade agreements like the one between India and the UAE have higher rules of origin (ROO) requirements, possibly to benefit and protect domestic producers. Under the UAE deal, exported goods need to have 40% value addition in the originating country.

“While ROO requirements protect the domestic industry and try to avoid circumvention, they add to the compliance costs and constraints on sourcing decisions, resulting in inefficiency of trade and trade reduction for selected products. In this regard, a one-size-fits-all approach needs to be avoided," it said. Queries sent to the ministry of commerce and UAE’s ministry of economy remained unanswered till press time.

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