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EFTA-India Trade Agreement Will Attract Investment to Garment Value Chain

The Trade and Economic Partnership Agreement (TEPA) signed between the European Free Trade Association (EFTA) States—Iceland, Liechtenstein, Norway and Switzerland—and India, promises significant economic benefits, such as better integrated and more resilient supply chains, new opportunities for businesses leading to increased trade and investment flows, job creation, and economic growth. Rahul Mehta, Chief Mentor of the Clothing Manufacturers Association of India (CMAI), weighs in on what it holds out for India.

By

20 March 2024

 4 minutes
Long Story, Cut Short
  • The agreement enhances market access and simplifies customs procedures making it easier for Indian and EFTA businesses to expand their operations in the respective markets.
  • The landmark agreement further aims to facilitate and promote investment opportunities between the signatories.
The EFTA-India TEPA was signed by Piyush Goyal, Minister of Commerce & Industry, Consumer Affairs & Food & Public Distribution and Textiles of India; Guy Parmelin, Swiss Federal Councillor and Head of the Federal Department of Economic Affairs, Education and Research; Bjarni Benediktsson, Minister of Foreign Affairs, Iceland; Dominique Hasler, Minister of Foreign Affairs, Liechtenstein and Jan Christian Vestre, Minister of Trade and Industry, Norway.
Cutting the Deal The EFTA-India TEPA was signed by Piyush Goyal, Minister of Commerce & Industry, Consumer Affairs & Food & Public Distribution and Textiles of India; Guy Parmelin, Swiss Federal Councillor and Head of the Federal Department of Economic Affairs, Education and Research; Bjarni Benediktsson, Minister of Foreign Affairs, Iceland; Dominique Hasler, Minister of Foreign Affairs, Liechtenstein and Jan Christian Vestre, Minister of Trade and Industry, Norway. Press Information Bureau

This interview is the second in the WireFrame series on the TEPA

The pioneering Clothing Manufacturers Association of India (CMAI), with a membership base of over 20,000 companies, including readymade garment manufacturers, exporters, retailers and ancillary industry, acts as a catalyst of change by interacting with Central and state governments on matters of policies that impact the future of apparel industry.

The most representative association of the Indian apparel industry for over five decades, it has been authorised by the Government of India to issue Certificate of Origin (Non-Preferential) to exporters.

texfash.com: How is the TEPA going to benefit Indian apparel exporters? What exactly is going to change? Also, how will it impact Indian yarn/fabric exporters as well as exporters of cotton?
Rahul Mehta: Following the TEPA agreement, except for a minor advantage of 1–2% tariff reduction for Switzerland and Liechtenstein, there is no change in tariff structure for garments.

Hence, India can leverage the duty advantage to a small extent to increase garment exports to Switzerland. However, the strategies to be adopted will need to be other than mere price led.

Table 1: Tariff Comparison for Apparels 
 Country Previous Tariff Post EFTA- India TEPA
 Iceland 0% 0%
 Switzerland 1-2% 0%
 Norway 0% 0%
 Liechtenstein 1-2% 0%

Data Source: Market Access Map & Wazir Analysis

China serves as the key exporter to these nations, representing 30% of Switzerland's apparel imports, 40% of Norway's, and 32% of Iceland's. Indian exporters can capitalise on this opportunity to enhance their export share to these countries.

Table 2: Apparel Imports of EFTA Countries (US$ mn)
 Country 2019 2020 2021 2022 India’s Share (2022)
 Iceland 111 100 140 145 0.3%
 Norway 1,919 1,879 2,305 2,395 0.7%
 Switzerland 7,862 7,708 8,700 8,432 0.5%
 Grand Total 9,893 9,687 11,145 10,972 0.5%

Data Source: UN Comtrade & Wazir Analysis

Table 3: Apparel Exports of India to EFTA Countries (US$ mn)
Country 2020-2021 2021-2022 2022-2023 CAGR (FY21-FY23)
 Iceland 0.21 0.4 0.41 25%
 Norway 14 15 20 13%
 Switzerland 37 28 37 0.1%
 Grand Total 51 44 58 0.04%

Data Source: DGCI&S & Wazir Analysis

For yarn and fabrics there is not much change in the current tariff structure. Hence it is not expected to benefit the exporters significantly. Also, the correct fabrics and yarn imports by EFTA countries is not very high as highlighted below.

Table 4: Imports of EFTA Countries (US$ mn)
Categories 2019 2020 2021 2022 Import Share from India (2022)
Fabric 391 345 364 380 1%
Yarn 227 224 276 252 0.4%
Fibre 173 143 291 255 0.1%

Data Source: UN Comtrade & Wazir Analysis

In one of the categories of cotton yarn (HS Code: 5207-Cotton Yarn put up for retail sale) there is a tariff change from 1.51% previously to 0% in Switzerland. Indian yarn exporters can leverage this advantage and increase the yarn exports to Switzerland. Currently, $6 million of this particular yarn is imported by Switzerland.

Table 5: Tariff Comparison for Cotton Yarn (HS Code: 5207) 
 Country Previous Tariff Post EFTA- India TEPA
 Iceland 0% 0%
 Switzerland 1.5% 0%
 Norway 0% 0%
 Liechtenstein 1.5% 0%
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TEPA holds great significance for Iceland's trade and economic relations with Asia, creating a solid foundation for future trade with India, said its Foreign Minister Bjarni Benediktsson. "Moreover, it strengthens the political ties between Iceland and India, the world's most populous democracy, with the fifth-largest economy globally, which is continuously growing."
strengthening political ties too TEPA holds great significance for Iceland's trade and economic relations with Asia, creating a solid foundation for future trade with India, said its Foreign Minister Bjarni Benediktsson. "Moreover, it strengthens the political ties between Iceland and India, the world's most populous democracy, with the fifth-largest economy globally, which is continuously growing." Timelab / Unsplash

How is the phase-out of tariffs going to happen in case of textile/clothing product ranges? How is it going to affect exports?
Rahul Mehta: For exports from India to EFTA countries, duties will be eliminated immediately. Hence, exporters can target Switzerland market immediately for increasing garment exports.

Which textile/apparel items of the EFTA countries will now find a market in India? Please elaborate.
Rahul Mehta: Although India has granted duty-free advantages to almost all garment categories, most of the synthetic garments are excluded from the duty-free agreement and hence will not get any advantage. 

Following are the major non-synthetic garments exported by EFTA countries which will gain advantage in Indian market due to the duty advantage.

Table 6: Major exported non-synthetic categories of EFTA countries (US$ mn)
Categories 2019 2020 2021 2022 Export Share to India (2022)
Knit Apparel 282 448 489 463 0.4%
Outerwear 126 227 218 218 0.6%
Knitted Tops 81 134 142 136 0.3%
Dresses & Ensembles 20 31 43 33 0.2%
Woven Apparel 331 439 425 399 1%
Outerwear 113 152 136 153 1%
Men's Bottomwear 38 47 53 52 1%
Suits 49 42 35 38 1%

Data Source: Market Access Map & Wazir Analysis

How are the Rules of Origin going to affect textile/apparel trade between the EFTA countries and India?

Rahul Mehta: The Rules of Origin say:

  • Most textile products qualify for duty-free access to EFTA markets if non-originating materials' value is ≤ 60% of the ex-works price (CTSH & VNM 60% rule), requiring ≥ 40% value addition in India. Exceptions are items 5903, 5910, and 5911, which need only a change in chapter (CC) to qualify.
  • Apparels qualify for duty-free access if they undergo a change in chapter at the 2-digit HS code level (CC). Exceptions exist for specific apparel items (61.03, 61.13, 61.16, 61.17, 62.01, 62.07, 62.08, 62.09, 62.13, and 62.16), which must meet the CTSH and VNM 60% rule, necessitating ≥ 40% value addition in India.

Since there is requirement of minimum value addition of 40% in the originating country this will facilitate the garment manufacturing in the following ways:

  • It will ease the trade of garments made from imported fabrics, especially in cases of buyer-nominated, synthetic, or other fabrics not readily available in India.
  • Additionally, it would attract investment in the garment value chain. 

Rahul Mehta
Rahul Mehta
Chief Mentor
Clothing Manufacturers Association of India

Although India has granted duty-free advantages to almost all garment categories, most of the synthetic garments are excluded from the duty-free agreement and hence will not get any advantage.

Richa Bansal

Richa Bansal

RICHA BANSAL has more than 30 years of media industry experience, of which the last 20 years have been with leading fashion magazines in both B2B and B2C domains. Her areas of interest are traditional textiles and fabrics, retail operations, case studies, branding stories, and interview-driven features.

Full Bio
 

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  • Dated posted: 20 March 2024
  • Last modified: 20 March 2024
 
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