This article is authored by Anushka Adhikari, pursuing B.B.A.LL.B from SRM University, DELHI NCR. It has been published by Centre by Corporate, Competition & Insolvency SRM University.
Introduction:
The FTAs between UK-India and EU-India may allow India integrate with the global value chain of trade which is dominant, and the UK and the EU may find themselves accessing the single largest and fast-growing market along with one of the foremost manufacturing hubs in the world, all thanks to the supply chain resilience. These deals in addition would solidify their economic and political might in the Indo-P
The backdrop
The established data, however, is quite vague as having entered into only few FTA’s, most of the Indian trading processes occurs through the WTO’s multilateral ‘most-favoured-nation’(MFN) principle and/ or within its allowed exceptions, rather than in agreement with its FTAs. This phenomenon could be explained in view of the fact that most of the FTA’s which India is already a part to developed nations and/or their blocs and interacting with Asian peers, the overall result has been trade deficit for India. A general idea could be said to exist in the government that FTAs have not proven right for the economy, especially in the respect of export promotion and building capacities.
The Indian government is a gamechanger in its Foreign Trade Policy in 2015 – 2020”. It has rejuvenated the country’s strategy towards international trade and now it clearly asks for a balanced, fair and reciprocal trade across several countries and many regions. It is known from its future engagements that it will work only with those countries / regions which are not only high potential As far as the new strategy is concerned, the Indian government carried out yearlong reviews and re-negotiations of the existing FTAs with ASEAN, Japan and Korea and also started trade talks with developed countries or blocs like the US, UK, EU, Australia and Canada. India sees more of the complementarities with the developed countries/ blocs where they can alleviate its technological demands and let the country produce a more advanced and efficient alike as it is a core part of the global trade. Therefore, they are able to enjoy the benefit from accessing one of the biggest and the fastest growing markets (India) on the earth, having significant potential to export.
Rejection of India of China’s Regional Comprehensive Economic Partnership (RCEP) in November 2019 also offered a major incentive to its bilateral trade talks with the advanced countries/blocks such as the United Kingdom, the European Union and Australia, which were pending on many unresolved issues. India observed that RCEP was not a fair agreement for one reason or another if one considered the material questions. Despite some setbacks, India is determined to establish itself as an equally successful alternative industrial hub compared to China and other SE-ASEAN member countries. At the same time, becoming the largest the biggest foreign trading partner for any country including the developed ones is the core of its decision to exit the RCEP negotiations to accelerate FTAs with developed countries/ blocs.
The relationship between a country's trade policy and its international political viewpoints is commonly very close. Likewise, the changing scenery in the geo-politics globally and particularly in Indo-Pacific region after the outbreak of COVID-19 has proven to be another contributing factor to the revamping of such bilateral relationship with India. India has proved to be a challenging competitor trading wise for the past decade and not just a major supplier to the rest of the world but an important partner in the effort to counteract China’s increasing economic and political influence not only in the Indo-Pacific region but as well in Africa and to some extent for the neighbouring markets of most developed economies.
Possible FTA development between India and the UK.
After a long series of bilateral institutionalised dialogue sessions between India and the UK and a joint trade assessment which eventually terminated in the 4th of May, 2021 with both governments agreeing on an Enhanced Trade Partnership (ETP) as a prelude for an FTA. To formally commence, UK and India mutually agreed on the early harvest package (Interim Trade Agreement), which resolves to the joint investments by the two nations approximating £1 billion and extending to some immediate export chances for the UK businesses in India, across the industries, including food and drinks, fruit, medical devices, life sciences and services. As a short-run action plan, India consented to remove non-tariff obstacles on the UK export of fruit, food, and medical products.[3] On the way to the comprehensive trade agreement both parties decided to remove the trade barriers and to facilitate the market access respectively in the key sectors of common interest, following the roadmap of cooperation with the perspective for the next ten years to 2030[6]. The ETP was only one of the many MoUs that the UK and India have signed in the fields pertaining to joint innovation and investments, migration of professionals and students, digital technology, energy security, defence, telecommunication, customs, protection of intellectual property (IP), the interoperability of medical devices and pharmaceuticals, data protection and information exchange.
The catalyst
After leaving the EU bureaucracy, the UK government plans to set up FTAs that will ensure that 80% of UK trade will be done by the end of 2022. FTA with the EU, Japan and Singapore has been already concluded and FTAs between India and UK seems to the most potential FTA for UK, since UK used to be an active participant in forums of engagement across such markets. The pace of the trade between India and the UK is as the trade year over year between the two nations is recorded as progressing at an increasing rate of trade and as a result in 2020 it amounted close to £25 million with a stable balance. Trade and investment are also closely coupled when it comes to India and UK. Eventually, they go hand in hand. The UK is the largest flow of FDI in India (which itself is a member among the G-20 economic force) that contributes as much as the UK (which is, therefore, the second largest FDI investor in India) and this factor will likely therefore be a big positive one during FTA negotiations.
Key issues for negotiations
The common perspectives of India and UK on most of the international trade challenges can be defined as their relevance. As a result, both refuse to agree on the simplified multi-party interim appeal procedure arrangement in place of the WTO which is its appeal mechanism. In addition to their bilateral negotiations, a number of vital issues would need to be addressed in their trade relationship to realise the full scope of their trade, such as market access, investment protection, and barriers to trade including those stemming from technical regulatory processes like inspection, standards and conformity assessment, as well as IP and data protection.
Investment protection
At present, India and UK aren't the parties to any bilateral investment protection treaty (BIT). The existence of the previous BTI was cancelled by India by itself in 2017. India will aspire to revise the existing BTI with UK based on 2015 BTI model[10]. Taking into consideration with the many disputes going on between the Indian government and UK companies which deal with the issue of investment protection, the two sides will probably bring together a good agreement on investment protection to address the concerns of both parties.
Tariff barriers
Regarding the tariff and trade barriers, while UK would expect India to slash the tariffs on certain prime UK export items including foods, drinks (and whisky and Scotch as well), automotive, chemicals and life sciences (including pharmaceuticals and medical devices), the latter would expect greater market access for its engineering and auto components, ready-made garments, gems and jewellery and foods and agricultural products. Nevertheless, it will probably not placed enormous barriers on tariffs, as the current MFN tariff rates are already very low, particularly, due to the application of the UK Global Tariff (UKGT) as from January 2021, which replaced EU's Common External Tariff after the UK's departure from the EU. The UKPT results in; 60 percent of the trade taking place to the UK without paying any tariffs. WTO preferential access and FTA will ensure more favourable tariffs for UK exports. India is already making efforts to ensure that its tariff measures are WTO compliant which provide see to it that the trade becomes easier and more accessible for its trade partners. India is expected to reduce only those tariffs that are to take a backseat from the protectionist agenda.
Non-tariff and technical barriers
The lowering of this tariff barrier will form a central issue of the negotiations however, the two sides would primarily aim at non-tariff and technical barriers. As an example, India would hope the UK would show more willingness when it comes to WTO-plus requirements (focused on food sanitary and phytosanitary standards) that the UK has adopted, unless the Untied Kingdom has topple off from EU. These also include issues related to sampling, testing, rejection of consignments and existing customs rules for Indian exporters in UK.
The UK beside that would look at India dismantling trade barriers in agricultural products such as fruits and food as well as non-tariff, technical, customs procedures, labelling, registration, certification and licencing, and approval barriers in automotive, life sciences, healthcare, and digital and data services. Besides that, the UK is expecting the Indian government to perfect the existing IP regime (including to increase the IP basis for patentability criteria as well as to enhance the IP enforcement and development of trademarks and brand protection) and make the provided data protection regime (which is still in the legislative process) similar like it is in the General Data Protection Regulation (GDPR) (as the UK retained it after having left the EU with some It must be taken into account that it is going to have a very major impact on operations of a wide spectrum of fields thus it will also be one of the sharp-end moments to be handled by India.
Among the many important points in light of this trade are:
Moreover, among the available areas of trade, services make a considerable contribution to the trade volume of both countries and, hence, the negotiations on the market for services must provide for the mutual market access. If the trend is similar to the present, the UK will look for an open Mode 3 access (ICT, education, financial, telecom, travel, retail, and energy related service sectors) on a nearly liberal basis. In contrast, India is comparatively better in professional and enterprise service which includes current IT/ITes, including also medical, financial, audio-visual and tourism service. They may thus negotiate a liberal Mode 4 access which offers the movement/presence of professionals and students. The modalities on mode 4 access between the developed countries and the developing one, which includes India, has been an issue in achieving the equilibrium of the national interest versus the global agenda. Britain is likely to rank high immigration of sought after and highly skilled professions from India using it’s ‘Global Britain’ initiative approach until domestic opposition stays. In the similar vein, Britain expects an easier access in terms of Mode 3 by India (commercial presence) sphere by liberalizing the protected services sectors including accounting, legal services, architecture and audit. The discussion of trade in services might like to see both the United States and the European Union exercising diplomacy in a balanced manner.
Concluding thoughts
As for the next steps that both sides will need to take, each of them will need to conduct the analytical works, consulting, and domestic participation of stakeholders on their sides. As per some media reports, a 14 week period for conducting these negotiations both through bilateral consultations and multi lateral commitments has been suggested and formal talks could be kicked off at the end of this year and early next year. The UK government has started the 14 week, which is a business-time fighting for the fair deal and right negotiation with the FTA . Along the same lines, the Ministry of Industry and Commerce and relevant government departments in India have adopted the scoping session since the beginning of the process. Not only exporting and importing companies, also trade associations, cross-border organisations/ councils, trade promotion agencies, think-tanks, consultants and other interested parties of both countries may use this chance to put their views forward and to raise their issues in front of the relevant authorities.
India and UK are vital trade and investment partners of one another. Therefore, an FTA between these countries to underpin their bilateral trading and investment relation could become a path of growth for both UK and Indian economies especially services areas which are growing. Over the past many years, the UK has been the entry-point as well as final destination for Indian business/ exports in the EU prior to Brexit. The UK seems to be very motivated in competing the EU in order to retain their status as a primary destinations even after the Exit. London City pays a lot of attention to the issue of increasing power on the world stage; it strives for more political prominence abroad. Such an FTA between Italy and India can serve to Italy forge a strong partner or ‘sine qua non’ in the Indo-Pacific region, while at the same time, ensures that Italy does not miss out on the preferential access to India’s fast growing large economy.
Contrary to this, trade agreement with the UK, through the FTA, would be helpful to India in improving business environment in India and achieve secure access to UK market for its businesses the same way they achieve security to UK market for their businesses in India and also make Indian businesses competitive and innovative. India would realise it it has succeeded if the model of collaboration between the UK institutions and SII for the COVID-19 vaccine (Covishield – a joint product of the Oxford-AstraZeneca and SII) becomes also the successful example in other areas too, i.e. different areas where the drug was developed in the UK, is manufactured in India and supplied to the world. The wide-ranging FTA which will, in fact, bring about not so many but many benefits and outcomes!
