Trade Effects of Tariff Liberalization of India-UAE CEPA: An Examination

By : Saba Ismail, Shahid Ahmed

Page No: 199-216

Abstract
The present study investigates the effects of tariff liberalization under the India-UAE Comprehensive Economic Partnership Agreement (CEPA) using a partial equilibrium tool, the WITS-SMART model, to analyse the potential trade effects, specifically trade creation, trade diversion, welfare and revenue effects. Trade effects are assessed at two stages of classification, i.e., the UNCTAD stages of processing classification of goods and the HS 6-digit level of classification. The study examines the potential trade effects of a 100-percent tariff reduction by India and UAE on imports from each other, at the UNCTAD-SOP classification and HS 6-digit level using the SMART Model. The simulation results reveal that the India-UAE CEPA will result in approximately 70% trade creation and 30% trade diversion. The study argues that the India-UAE CEPA will result in trade diversion from many developed countries and other GCC member states, among others. It is pertinent for other GCC countries to negotiate an India-GCC FTA or CEPA to avoid possible trade diversion as a result of the India-UAE CEPA. The results also reveal positive consumer surplus gains for India and the UAE through the CEPA. The study argues that tariff reduction on imports from each other will result in losses in budget revenue, more so for India. Despite all advantages and disadvantages, the results show that overall, trade relations between India and the UAE have improved over time, but there is a lot of untapped potential in order to achieve welfare gains for both trading partners. Finally, the study cautions about the implications of a sensitive list for trade effects and protection from misuse of the rules of origin in the CEPA. 

Authors :
Saba Ismail
Associate Professor, Department of Economics, Jamia Millia Islamia, New Delhi.

Shahid Ahmed
Professor, Department of Economics, Jamia Millia Islamia, New Delhi.
 

DOI: https://doi.org/10.32381/PROD.2022.63.02.7