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India-UK Free Trade Agreement: Imminent Signing by Month-End 2023

India-UK Free Trade Agreement: Imminent Signing by Month-End 2023

Anticipated to be signed by the end of the month, the India-UK Free Trade Agreement (FTA) has become the talk of the town. The departure of the UK from the European Union, popularly known as Brexit, has compelled the UK to realign its trade relations.

As the UK no longer benefits from the collective agreements that the EU had with other nations, it seeks to form individual trade agreements.

India, UK likely to sign trade deal this year, official confirms | Mint

India, with its vast market and rapid economic growth, naturally emerges as a priority.

The primary aim is to remove trade barriers, thereby making it easier and cheaper for companies from both countries to access each other’s markets.

The ambitious deal, which is anticipated to encourage two-way trade in commodities and services between the two economies as well as enhance capital flows in the form of foreign direct investment, will be signed in India by UK Prime Minister Rishi Sunak in the latter part of October.

While attending the G20 Leaders’ Summit early last month, Sunak expressed his desire for a “comprehensive and ambitious trade deal” to be completed but noted that there was still “some hard work to be done” and that the agreement had to “work for both the countries.”

The Bilateral Investment Treaty (BIT) will, however, be signed later since an understanding has not yet been reached, he added. The India-UK Infrastructure Financing Bridge would handle any bilateral investment difficulties up until a BIT is signed, the official continued.

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Some of the topics that were proving to be difficult in the discussions were the BIT, the Rules of Origin, and intellectual property rights (the latter two under the FTA). India’s request for more lenient immigration policies for professionals was met with some pushback from the UK.

Early in 2021, India and the UK began FTA negotiations.

The UK requested more flexibility for its specialists to work in India and national treatment for its service enterprises. It has been decided upon. National treatment refers to applying laws and regulations equally to both residents and visitors. It also entails providing foreign business owners with equal access to opportunities and refraining from taking any actions that might disadvantage them.

Financial services, commercial and professional services, and transport services are the service categories in which the UK was interested.

 In order to provide its business travellers more options to conduct business in India, it also desired a liberalised visa process.

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Australia has obtained ambitious pledges in the FTA with the UK on the reciprocal recognition of professional degrees and offering more assurance for trained professionals accessing the UK job market.

The two most delicate topics in the FTA negotiations, in India’s opinion, were the taxes on whisky and vehicles.

The lowering of import taxes on goods coming from the UK would be timed so as to have little effect on domestic production in the car industry. Both nations’ perspectives on immediate duty reductions, the speed at which reductions will occur in the coming years, and other issues have become more pronounced in the spirits trade.

India may lower the import tariff on wines and other alcoholic beverages from 150% to 100% before further lowering it to 50% over a ten-year period. The UK had asked that the tariff be cut to 75% immediately and subsequently to 30% over the next three years.

Despite the high duties, Mumbai-driven imports of scotch whisky increased to 7.5 million cases in 2022 from 5.5 million cases in 2021. 8 million cases of bottled alcohol were imported overall in 2022.

Leather UK has complied with India’s request for a reduction in tariffs to zero in traditional export industries like textiles.

Balance of Trade, Balance of Power | Cato Institute

In FY23, India’s exports of goods to the UK climbed 9.03 percent year over year to $11.4 billion, while its imports jumped by 27% to $8.9 billion. FDI from the UK increased to $1.7 billion in FY23 from $1.6 billion in FY22. Ready-made clothing and textiles, diamonds, jewellery, engineering products, petroleum and petrochemical products, transport equipment, spices, machinery and instruments, medicines, and marine items are among India’s top exports to the UK.

Precious and semi-precious stones, ores, scrap metal, engineering products, non-electronic professional equipment, chemicals, and machinery are the principal imports from the UK.

The FTA aims to create a favorable environment for investments by providing clarity on regulations and offering protections against sudden policy changes.

The agreement will likely have provisions encouraging joint ventures in technology, especially in sectors like IT, biotechnology, and green energy solutions.

The challenges of cross-border international trade - KPMG Global

Given the UK’s prowess in services and India’s growing service sector, there’s a mutual interest in cooperation.

A significant reduction or elimination of tariffs on a wide range of goods, making exports and imports cheaper for both countries.Regulations that specify the source criteria a product must meet to qualify for preferential tariff treatment.

Enhanced protection mechanisms, which could be a boon for the pharmaceutical, tech, and entertainment sectors.Provisions that facilitate and regulate digital trade between the countries.

companies, especially those in textiles, agriculture, and IT services, can benefit from the easier access to the vast UK market.

UK businesses might see India as a more lucrative destination, especially in sectors like infrastructure, technology, and manufacturing.Collaboration, especially in research and development, can lead to knowledge transfer.

As the UK realigns its global trade post-Brexit, this FTA provides a robust foundation.The burgeoning middle class of India presents a massive market for UK goods and services.

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Access to India’s skilled yet cost-effective labor pool, especially in the IT and service sectors.It’s essential to ensure that the FTA benefits are equally distributed. Concerns arise when one party seems to be benefiting disproportionately.

The UK and India have different regulatory environments, and aligning them can be challenging.Intellectual property rights, especially in pharmaceuticals, can be a contentious issue.

Global trade hits record high of $28.5 trillion in 2021, but likely to be subdued in 2022 | UNCTAD

The India-UK Free Trade Agreement is more than just a trade deal; it’s a symbol of the evolving global order post-Brexit and the eastward shift of economic gravity.

If both nations address the challenges and leverage their unique strengths, this agreement has the potential to set a precedent for future trade agreements and usher in a new era of bilateral cooperation.

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