The ongoing discussions for the India-UK Free Trade Agreement (FTA) have reached a crucial stage, as representatives from both nations are diligently working towards resolving the final outstanding matters about the 26 areas under negotiation. If the anticipated outcome materializes, the Prime Ministers of India and the United Kingdom may declare the Free Trade Agreement (FTA) finalization.
The India-UK Free Trade Agreement (FTA) signifies a significant milestone in India’s trade agreements, ushering in a new era of economic relations between the two nations. This transition redirects attention from the Eastern region to the Western part, facilitating diplomatic discussions with Western countries such as the United Kingdom, European Union, Israel, Switzerland, and the United States. In addition, the FTAs encompass several non-trade matters such as environmental concerns, labour standards, intellectual property rights, digital trade, government procurement, competition policies, and gender-related considerations. This inclusion gives rise to opportunities and challenges within the context of the FTAs.
What benefits may India anticipate from establishing a significant trading relationship and achieving a trade surplus? This analysis examines the critical areas of emphasis, obstacles, and potential results.
The concept of merchandise commerce refers to the exchange of goods between countries, typically involving importing and exporting tangible products. Indian exports, including petroleum, medicines, diamonds, machine parts, aeroplanes, and wooden furniture, valued at $6 billion, are not subjected to tariffs in the United Kingdom despite the absence of a Free Trade Agreement (FTA). These entities will not benefit from the Free Trade Agreement (FTA).
Indian exports, including textiles, clothes (such as shirts, trousers, women’s outfits, and bed linen), footwear, carpets, vehicles, marine products, grapes, and mangoes, encounter tariffs of varying degrees in the United Kingdom, which range from relatively low to moderate levels. The total value of these exports amounts to $5 billion. As an illustration, the tariffs imposed on yarn and fabric amount to 4 per cent, whereas the duties levied on shirts, trousers, women’s dresses, and bed linen vary between 10 and 12 per cent. The tariff reductions implemented by the UK will prove advantageous for specific products. However, the mere signature of a Free Trade Agreement (FTA) may not significantly increase India’s exports of labour-intensive goods. The Free Trade Agreement (FTA) between India and Japan did not result in substantial growth for India’s textiles and apparel exports to Japan. Enhancements in product quality are crucial for achieving a significant increase in exports.
The United Kingdom’s exports to India amount to $8.2 billion, representing around 91 per cent of the total value of merchandise imports from the UK. These exports are subject to customs payment and charges ranging from average to high levels. As an illustration, the imposed tariff rate on automobiles is 100 per cent, while Scotch whisky and wines are subject to a tariff rate of 150 per cent. The mean tariff rate applied to goods imported from the United Kingdom into India is 14.6 per cent. The reduction of tariffs by India will result in a positive impact on the profitability of these products.
India could decrease tariffs on autos from a current rate of 100 per cent to 50 per cent. India may also consider granting permission for a limited number of units, subject to a tariff rate of 25 per cent. India has the potential to gradually decrease its tariffs on Scotch whiskies from 150 per cent to 50 per cent, mirroring the approach it previously adopted for Australian wines.
India has exhibited reluctance in decreasing tariffs in Free Trade Agreements (FTAs) owing to resistance from dairy cooperatives and apprehensions regarding the well-being of farmers, thereby rendering it a politically delicate matter. Implementing selective imports is expected to incentivize Indian enterprises to enhance their operational processes and provide customers with healthier options while minimizing adverse effects on farmers. The primary objective of import openings should prioritize improving domestic quality rather than solely benefiting the partner country.
One area where India can gain immediate benefits is by advocating for the issuance of priority visas by the UK to Indian professionals who are travelling for short-term assignments. However, securing a significant number of short-duration business visas from the UK may be challenging. This difficulty arises from the UK’s mistaken association of visas with immigration, which has become a sensitive matter following the Brexit process.
British companies are interested in gaining a share of the growing Indian telecommunications, legal, banking, and insurance industries. The United Kingdom may advocate for Indian commitments in specific fields.
Within the context of a Free Trade Agreement (FTA), it is essential to note that while the reduction of tariffs indeed provides an immediate cost benefit to exporters of goods, this advantage does not extend to exporters of services. The negotiators’ primary objective is to preserve stability within the current investment regulations. The parties engage in discussions to establish enforceable obligations within the framework of pre-existing autonomous entities.
The rules of origin guarantee that products originating from third countries are eligible for free trade agreement (FTA) benefits solely if they undergo substantial changes in the exporting nation. India prefers conservative rules of origin in contrast to most developed countries, resulting in protracted deliberations and negotiations. India may be required to enhance the flexibility of its controls of origin framework, particularly in light of the growing utilization of imported inputs by its firms operating in sectors such as chemicals, electronics, and synthetic textiles.
Government procurement refers to the process by which entities acquire goods, services, or works from external sources. It involves various steps.
India has not made any commitments regarding the government procurement chapter within the World Trade Organisation (WTO).
Consequently, it can provide preferential treatment to domestic companies without concerns of contravening trade regulations. Including UK producers in the Free Trade Agreement (FTA) would allow them to engage in sales to India’s government procurement sector, thereby establishing a level playing field with domestic Indian firms. In contrast, Indian firms encounter a competitive and constrained government procurement market in the United Kingdom, which offers limited business opportunities. India needs
The individual tends towards conservatism and displays a cautious approach.
India should prioritize establishing domestic rules and standards about labour, gender, environment, digital trade, and intellectual property rights (IPRs) before committing to the Free Trade Agreements (FTAs). Until then, India must refrain from assuming burdensome responsibilities about non-trade matters.
The sustainability chapter of the FTA may offer legal grounds for the United Kingdom to implement non-tariff barriers on Indian goods to advance sustainability objectives. In such an occurrence, the potential market access India could anticipate within the Free Trade Agreement (FTA) framework may be compromised.
India should refrain from consenting to unrestricted cross-border data flows. The ownership of national data plays a pivotal role in developing public services. India should refrain from reaffirming the International Labour Organisation (ILO) conventions on labour issues. The commitments the International Labour Organisation (ILO) made represent a commendable effort. However, it is essential to note that when these commitments are reiterated within a Free Trade Agreement (FTA), they acquire a legally binding nature and can be enforced. This reasoning applies to various domains, including the environment, sustainability, and other related areas. Including women and micro, small, and medium enterprises (MSMEs) in various initiatives may serve as a means to secure preferential treatment in government procurement or services.
The United Kingdom Government has outlined its plans to implement emissions reporting by 2025, followed by a gradual implementation of the Carbon Border Adjustment Mechanism (CBAM) starting in 2026. Upon the performance of the Carbon Border Adjustment Mechanism (CBAM), products from the United Kingdom will be granted entry into India without any duties. However, products originating from India may be subject to tariff equivalents ranging from 20 to 35 per cent, which will be levied as CBAM charges. A fitting textual passage could be incorporated within the Free Trade Agreement (FTA) chapters that address this potentiality.
The potential benefits and intricate obstacles associated with the India-UK Free Trade Agreement (FTA) present a nuanced perspective. Achieving a successful Free Trade Agreement (FTA) necessitates carefully managing economic interests, political considerations, and a steadfast dedication to enhancing the quality of Indian products.
The individual in question assumes the role of founder within the Global Trade Research Initiative, an established research collective with a specific focus on the interplay between trade, technology, and climate change.
