differences in tariffs and labor norms may require compromise
Published on: October 31, 2023.
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India and the UK are making significant progress in finalizing their bilateral free trade agreement (FTA). This agreement has been in the works for less than two and a half years, following the green signal from Indian Prime Minister Narendra Modi and former UK Prime Minister Boris Johnson. If the agreement is signed before the end of 2023, it will become the second-quickest FTA conclusion by India, only behind the UAE agreement, which took less than six months.
There are several factors that have prompted both countries to negotiate this FTA. India has seen a consistent decline in the UK’s importance as a trade partner over the years. In 2000-01, the UK accounted for 5.8% of India’s total trade, making it the second-largest partner. However, by 2021, this figure had dropped to just 1.7%. The FTA presents an opportunity for India to revive its trade relations with the UK.
The UK’s Department for International Trade (DIT) has identified key sectors of mutual interest, such as life sciences, science, technology, and services, where an FTA with India would offer high economic potential. The UK also sees this agreement as a chance to address trade barriers, including high tariffs, and position itself as a major trading power post-Brexit.
During the negotiations, both countries have encountered differences on crucial issues. Tariff reductions on key products, digital trade, free flows of data, government procurement, labor and environmental standards, and intellectual property rights are among the contentious topics. India’s relatively higher tariffs have been a major concern, with only 3% of UK exports to India enjoying tariff-free status compared to 60% of Indian exports to the UK. The average tariffs faced by UK exports to India in 2022 were nearly 15%, while Indian exports faced around 3% tariffs in the UK.
Important areas of contention include automobiles, alcoholic beverages, and milled rice. The UK has urged India to reduce tariffs on passenger cars, which range from 70-100%. The UK is also seeking tariff reductions on alcoholic beverages, with a target of 30% tariffs over three years. On the other hand, India is looking for increased market access for milled rice by removing the current tariffs imposed by the UK.
Digital regulations have become a significant consideration, given the increasing digitalization of economies. The two countries are addressing issues such as free and trusted cross-border data flows, data localization, and transfer requirements for source codes and algorithms.
The UK’s initial position on India’s Patents Act, which targets provisions facilitating the growth of generic firms, conflicted with the interests of the National Health Service (NHS), which sources affordable generic medicines from India. As a result, the UK has decided to protect the interests of the NHS and maintain its commitment not to increase the cost of medicines during negotiations with India.
Enforcing international labor standards has also been a point of disagreement between the UK and India. The UK includes these standards in its FTAs, but India has not ratified certain conventions due to its flexible labor market policies. India has advocated for provisions facilitating the temporary movement of professionals, while the UK is less inclined to open its borders. India is also keen on including a social security agreement with the UK in the FTA, which would benefit Indian professionals working in the country for a short period.
In conclusion, the India-UK FTA negotiations have made significant progress, with both countries aiming to address trade barriers and enhance economic cooperation. While differences remain on several issues, both sides are working towards a mutually beneficial agreement that can revive trade relations between the two nations.
Source – [Financial Express](https://www.financialexpress.com)
