During a virtual summit February 18, the United Arab Emirates and India sealed a Comprehensive Economic Partnership Agreement aiming to increase annual bilateral trade and services from the current level of $60 billion to $115 billion over the next five years. Given the diversified basket of sectors and measures, achieving the goal is not impossible, but it is – optimism notwithstanding – certainly a tall order.
One potential way of avoiding competition arising from similar deals with other countries, and to plug gaps and maximize returns, is to expand the agreement’s bilateral arrangements to trilateral or broader cooperation. Two relevant partners in this endeavor are Israel and the United States, which joined the UAE and India to announce the “partnership for the future” in late 2021.
The UAE-India CEPA
CEPA is part of the Joint UAE-India Vision Statement released during the virtual summit. It aims to advance the 2017 Comprehensive Strategic Partnership between the two countries to new frontiers and milestones. CEPA is India’s first bilateral trade agreement in the Middle East and North Africa. It was formalized in a short period – official talks started only in September 2021. The agreement is broad, covering 11 service sectors and over a hundred subsectors, from trade and innovation to aviation and tourism. But what sets CEPA apart is that it is expected to be implemented quickly, by May.
The UAE is India’s third-largest trading partner after China and the United States. The UAE and India currently account for over 16% of global trade in gold and diamonds. Along with jewelry, India’s labor-intensive textile, leather, and agriculture sectors are expected to benefit from a reduction in the UAE’s customs duties. Tariffs on commodities like aluminum, copper, and steel have also been reduced. The UAE will get enhanced market access to India for petrochemicals. But the pharmaceutical industry is tipped to emerge as the biggest winner. India, which is one of the world’s largest generic drug manufacturers, will now be allowed to access the UAE market with medicines that are approved by the United States.
CEPA is expected to increase Emirati investments in India, which would enable New Delhi to ramp up its manufacturing sector and use the UAE’s transportation and logistics infrastructure as an entrepot for greater exports to other Middle Eastern and African markets, thus making it a “comprehensive win-win” arrangement, according to UAE Minister of State for Foreign Trade Thani bin Ahmed Al Zeyoudi. This may motivate the Gulf Arab states and India to hasten their free trade agreement negotiations.
While the Abu Dhabi National Oil Company, DP World, Mubadala, and the Abu Dhabi Investment Authority have been key investors in India in recent years, there have been some Indian investments in the UAE as well, particularly in the energy, manufacturing, and real estate sectors. CEPA, therefore, also aims to increase Indian investment in the UAE. The UAE is specifically encouraging Indian investors to tap the potential of advanced technology and specialized economic zones, including agro-tech and metals.
The two countries have agreed to establish a joint Hydrogen Task Force to advance technology and investment in hydrogen energy production, particularly focusing on green hydrogen. The countries will collaborate in emerging and digital technologies, including in innovation, finance, and education. CEPA also stresses teamwork in intellectual property issues related to small and medium enterprises and technological innovation.
Moving From Bilateral to Minilateral
The UAE is currently negotiating Comprehensive Economic Partnership Agreements with Britain, South Korea, Ethiopia, Indonesia, Israel, Kenya, and Turkey. India too is negotiating free trade agreements with Britain, Australia, Israel, and the European Union. The deal with the UAE became critical for India after it decided not to join the pan-Asian Regional Comprehensive Economic Partnership that includes China.
It is amid these bilateral developments that the new grouping of Israel, the UAE, India, and the United States has gained importance. The countries held virtual talks in October 2021, and the first in-person meeting is scheduled for March. They have announced partnerships in technology and infrastructure projects and are keen to enhance political and economic cooperation and maritime security. The group has been referred to as the “new quad.” However, this nomenclature is misleading because, unlike the original quad of the United States, Australia, Japan, and India, the new bloc is rooted in increasing regional cooperation rather than competition with China.
While the United States is the chief unifier in the club, the other three countries are striving middle powers. India’s strategic ambition gels well with that of “startup” Israel and “scale-up” UAE. Moving forward, there is room for the UAE, India, and Israel to take the initiative and create new, flexible and issue-based, partnerships adding new members, including, for example, Japan and South Korea.
With bilateralism possibly inching toward a saturation point and multilateralism yielding limited results, the idea of “minilateralism” or “plurilateralism” has gained traction in recent years. Minilateral or plurilateral relationships generally are narrower, informal, and adaptable, centering on “task-oriented” initiatives to address specific problems with fewer countries sharing the same interest.
It is in this spirit that a UAE-Israel-India trilateral agreement was signed in May 2021 with an Israeli company producing an innovative water-free robotic solar cleaning technology in India for a project in the UAE. Confident they can replicate such collaboration in other sectors, the three governments have estimated the innovation and international business potential of the agreement at $110 billion by 2030.
Other trilateral partnerships, which include a combination of these countries, continue to develop reinforcing cooperation among the core grouping. For example, the UAE, India, and France are joining together to spearhead the International Solar Alliance and are conducting joint naval exercises. The UAE and India are also collaborating to set up an information and communications center in Ethiopia, and the UAE hosted the December 2020 Empower Africa event “UAE and Israel Uniting with Africa.” India has also recently engaged in trilateral partnerships with Japan and Australia, as well as Italy and Japan, among others. Even countries that have challenging ties are testing trilateral mechanisms. For example, China, South Korea, and Japan met in late 2021 to discuss collective ways of revving up their pandemic-affected economies.
The momentum of the UAE-India CEPA, and growing trade between Israel and both these countries, provides a good base for substantially expanding economic cooperation within this new partnership. Areas of cooperation could include clean energy, services, tourism, health care, cybersecurity, education, advanced technologies, and food security. Israel’s strategic cooperation with India especially around technology, innovation, education, and health care has progressed since Prime Minister Narendra Modi’s 2017 visit to Israel – the first by an Indian prime minister.
This India-Israel engagement coincides with growing UAE-Israel cooperation and the launch of negotiations on their own version of CEPA. After agreeing to normalize diplomatic relations in 2020, bilateral trade exceeded $700 million in 2021, a significant uptick from the $125 million in 2020. UAE Minister of Economy Abdulla bin Touq Al Marri set a goal of $1 trillion worth of economic activity over the next decade with Israel. As a first step, in March 2021 the UAE established a $10 billion investment fund aimed at strategic sectors in Israel, including energy, water, space, health care, and agri-tech.
Adding Israel as a third partner and transforming the India-UAE CEPA into a trilateral trade agreement could clear existing trade and regulation bottlenecks and substantially enlarge trade volumes that are already growing between and among the three partners. This could encourage enlargement of the grouping or formation of other such groupings in the Middle East. The synergies of these middle power groupings could provide a base for a modular arrangement by adding or replacing countries based on both strategic and economic cooperation.
Overall, the changing geostrategic landscape globally provides new opportunities for cooperation between middle powers in Asia and the Middle East. The UAE, India, and Israel template and their variants pave a promising path forward.
