European Free Trade Association (EFTA)

2. It was established in 1960 To promote closer economic cooperation and free trade in Europe by Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the United Kingdom.

3. Denmark and the United Kingdom left EFTA in 1972 to join the European Economic Community (EEC). Portugal also left EFTA in 1985 to join the EEC. EFTA’s first free trade agreement was signed with Spain.

4. Un 10 March 2024India Signed a trade agreement with the four-nation European Free Trade Association (EFTA). Will bring a deal $100 billion With more than 15 years of investment, EFTA is looking at joint ventures that will help India diversify its imports away from China.

5. The India-EFTA agreement is expected to widen the trade gap. While the legality of the $100 billion investment commitment by EFTA is unclear, such investment could help India generate economic activity and jobs in exchange for market access to EFTA. Moreover, India could see gains in the services sector and the deal could help India further strengthen its services sector.

6. This is the first time in the history of FTA that a Legal commitment Target oriented investments are made to promote and create jobs.

7. Funds in the EFTA region include Norway’s $1.6 trillion sovereign wealth fund, the world’s largest such ‘pension’ fund, which is expected to reach $213 billion in 2023 on the back of strong returns on investments in technology stocks. Record profits were made.

8. Switzerland, which is India’s largest trading partner among the EFTA countries, decided to eliminate import duties on all industrial goods for all countries from January 1, 2024.

9. The elimination of tariffs on all industrial products, including chemicals, consumer goods, vehicles and textiles, is a matter of concern for India as industrial goods account for 98 percent of India’s $1.3 billion trade exports to Switzerland in FY2023. Regardless of any tariff elimination that is part of the deal, Indian goods will face stiff competition

What is the status of ‘Most Favored Nation’?

The 164 members of the World Trade Organization have committed to treating other members equally so that they can all benefit from each other’s lowest tariffs, highest import quotas, and lowest trade barriers for goods and services. This principle of non-discrimination is known as Most Favored Nation (MFN) treatment. There are some exceptions, such as when members strike bilateral trade agreements or when members grant developing countries special access to their markets.

BEYOND THE NUGGET: Supreme Court decision in the case of Nestlé SA

1. Switzerland cited the 2023 order of the Indian Supreme Court in the Vevey-headquartered Nestlé case for its decision to withdraw MFN status.

2. The decision of the Supreme Court came in 2072 Assessing Officer (International Taxation) v Nestle SA Given the interplay between domestic law and international law under India’s constitutional framework, the case examined whether government notification was required to give effect to most-favoured-nation (MFN) clauses under India’s tax treaties.

3. The court determined that government notification is required to give effect to MFN clauses under India’s tax treaties because such clauses alter or vary the provisions of the Income Tax Act (IT Act). The court ruled that if a country joins the Organization for Economic Cooperation and Development (OECD), the MFN clause is not automatically triggered if the Indian government has signed a tax treaty with that country before joining the organization.

4. The suit was filed because Nestlé India believed that the MFN clause automatically applies to countries that joined the OECD after 1994. As a result Switzerland unilaterally Tax rate on dividends From 10% to 5% for Indian firms, citing treaties India signed with Lithuania and Colombia, which became OECD members in 2018 and 2020.

5. The stand of the Government of India was that the MFN clause was applicable only to countries that were OECD members in 1994 when the treaty was signed. India argued that MFN benefits are not automatic and require clear notification – the SC agreed with this stance.

(Source: Supreme Court ruling on tax treaties clarifies India’s most-favoured-nation approach, India’s DTAA with Switzerland may require renegotiation: MEA, India signs trade deal with EFTA: What is the deal’s significance?)

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