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What is slowing down India-UK FTA from getting its final push?

Sujit Nair, Founder Chairman of the Europe India Centre for Business and Industry (EICBI), shares insights that redefine cross-border commerce and strategic alliances

Sujit S Nair, FRSA, Founder Chairman, EICBI

Sujit S Nair, FRSA, Founder Chairman, EICBI

In the realm of global trade, the India-UK Free Trade Agreement (FTA) emerges as a milestone shaping the Comprehensive Strategic Partnership between the two nations. Established in 2021, this partnership is fortified by a robust roadmap guiding their collaborative efforts toward 2030. At the heart of their strategic collaboration lies the pursuit of a workable landing point for the FTA that resonates with the interests of both India and the United Kingdom.

This endeavour is notably set against a backdrop of political dynamics, with UK Prime Minister Rishi Sunak navigating the challenge of ensuring stability within his government amidst the impending re-election scheduled for 28th January 2025. Meanwhile, India, too, gears up for its general elections in 2024, adding a layer of significance to the ongoing discussions surrounding the FTA.

Once inked, the India-UK FTA holds the promise of serving as a benchmark for future agreements, especially with the European Union, India's second-largest trade partner.

To unravel the intricate details and insights surrounding this pivotal FTA, Bizz Buzz reached out to Sujit S Nair, FRSA, Founder Chairman of the Europe India Centre for Business and Industry (EICBI), renowned for his contributions in the realms of foreign policy and strategic diplomacy. Sujit promises a detailed and nuanced perspective on the India-UK FTA, shedding light on its complexities and implications for bilateral and global trade relations

What were the major focal points discussed in the recent India-UK FTA negotiations held in London and Delhi?

While the UK-India 2030 Roadmap agreed by the Prime ministers of India and the UK paints a promising picture, finding the right "landing point" for the UK-India FTA seems crucial to ensure it truly delivers on its potential for both countries.

Despite the involvement of short-lived UK governments over the last few discussions, whispers suggest the India-UK FTA is nearing completion, fuelled by a mutual desire to resolve outstanding issues. Although negotiations have largely flown under the radar despite their speed, recent rounds in London and Delhi have tackled thorny topics like rules of origin (ROO) standards, professional mobility across borders, and protectionist measures in autos and beverages.

While specifics of the UK India FTA discussion remain confidential, reports indicate broad consensus has been reached on 24 of the 26 draft chapters, signifying significant progress.

Three key sticking points remain:

• ROO: Determining which products qualify for preferential tariffs under the FTA.

• Intellectual Property (IP): Balancing protections for innovation with access to affordable medicines and technology.

• Professional Mobility: Addressing concerns about the annual cap on work visas for Indian professionals in the UK.

This FTA with the UK is poised to be India's most comprehensive to date, covering aspects like product-specific regulations, value addition, and certification. It holds significant potential for both economies:

• British exports: Currently face high tariffs (100-150 per cent) on cars, Scotch whisky, and wines in India. Reduced tariffs could boost British exports in these sectors.

• Indian exports: Textiles, clothing, footwear, and agricultural products could see increased access to the UK market due to lower tariffs.

What obstacles have caused the delay in finalising the India-UK FTA, extending beyond the initial deadline?

Driven by the promise of significant benefits, India and the UK are racing against the clock to finalise their FTA, but crucial differences and the specter of upcoming elections in the UK and India could complicate the final push for FTA. Crucial demands are casting a shadow over UK-India trade talks.

• British ambitions: The UK desires preferential tariffs for its key exports like autos (80 per cent sent abroad, mainly to Europe), whiskey, dairy, and meat. Additionally, they seek "national treatment" for their financial and telecom services in India, meaning equal footing with Indian competitors in terms of regulations and laws.

• Indian counterpoints: India hesitates to grant national treatment to British service providers, wary of potential market advantages. Instead, they seek lower tariffs for their labor-intensive exports like textiles and garments. Relaxed visa rules for Indian professionals are also on the table, but this is a sensitive topic in post-Brexit UK, where migration control remains a top priority.

• Electric vehicle wrinkle: Both sides are discussing limits on duty-free electric vehicle (EV) trade, despite the UK's 2035 ban on internal combustion engines. This could hinder their ambitious EV aspirations.

I also align with India’s External Affairs Minister Jaishankar's stance, advocating a cautious approach to the India-UK FTA or any other FTA’s which India is going to sign in the future. At the EICBI, we've conducted numerous sessions in the past two years focusing on the UK-India FTA, striving to comprehend its implications from various perspectives.

Given India's status as a developing nation with a market less sophisticated than developed ones, signing such agreements could significantly impact the millions of small businesses in India. Despite potential criticism from vested interests, it's crucial for India to thoroughly evaluate all aspects before finalising such agreements, emphasising deals that demonstrably improve livelihoods. Additionally, to expedite the FTA, the UK can consider refraining from contentious demands and embracing a deal that grants substantial market access to its companies.

Unless substantial progress is made by late January, fears abound that the India-UK FTA negotiations could be drawn out until after India's general elections. Once the budget session in India kicks off in January/ February, political focus shifts gears, leaving little room for major trade deals. With the Model Code of Conduct looming upon election announcement, the current Narendra Modi-led government would be virtually handcuffed, unable to finalise the agreement before voters’ head to the polls.

Could you elaborate on the growth pattern of bilateral trade between India and the UK from 2021–2023 and how this aligns with their commitment to developing a comprehensive trade relationship?

Bound by shared values and a strategic partnership forged over two decades, India and the UK are steadily building a comprehensive trade relationship. Dedicated platforms like the India-UK Economic & Financial Dialogue (EFD), India-UK Joint Economic and Trade Committee (JETCO) and the India-UK EFD and ongoing trade talks underline their mutual commitment to economic cooperation and bilateral trade growth.

More than just talk, India and the UK are putting their economic partnership into action. Bilateral trade has jumped 16 per cent in just one year, from $17.5 billion to $20.36 billion, marking a promising trajectory for their future trade deal. A web of investments binds India and the UK, weaving a strong economic tapestry.

• India ranks high as the UK's fifth-largest investor, boasting over 700 businesses, including Tata, the largest private sector employer in Britain.

• Conversely, the UK stands tall as India's third-largest FDI source, injecting capital into crucial sectors like computer software, ports, services, petroleum, and roads and highways.

• Trade flows further deepen the connection. India exports a diverse range of goods to the UK, including textiles, jewellery, engineering goods, petroleum products, spices, and even IT services, where the UK is its biggest European market. In return, India receives precious stones, metals, machinery, and chemicals from the UK.

This intricate economic interplay underlines the strong partnership between India and the UK, showcasing mutual investment, diverse trade flows, and key collaborations in promising sectors.

In light of the recent discussions, what are the immediate next steps or expectations for the forthcoming fourteenth round of negotiations in January 2024?

As the clock ticks down to the 14th round of India-UK FTA talks in January, anticipation for a breakthrough soars. Both nations harbour ambitious goals, eager to unlock the vast potential of deeper economic cooperation. However, officials warn, cracking the "toughest knots" like goods, services, and investment won't be a cakewalk.

Political turbulence in London hasn't helped maintain momentum, causing interruptions and delays. Still, the desire for progress remains strong. India seeks wider access for its skilled professionals in IT and healthcare, while the UK eyes lower tariffs on its goods and opportunities in telecommunications, legal, and financial services.

The External Affairs Minister recently addressed criticisms about the slow-paced talks by questioning the naysayers “Nobody says why isn't the UK quickly signing up with India?” but he also added that we should speed it up because every FTA and every open step is an achievement in itself.

The path ahead demands exceptional understanding and communication from both the UK and India. While this isn't a walk in the park, the potential rewards of a robust FTA make the journey worthwhile.

Sheela Mamidenna
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