Editorial. India should strike a hard bargain with UK on FTA

The government seems to have fast-tracked its free trade talks with the UK, with the PMO having reviewed the progress recently and a delegation already in the UK to iron out differences. Commerce Secretary Sunil Barthwal said that the talks, which began two years back, are meant to safeguard India’s commercial interests, besides ensuring that farmers and the production linked incentive scheme for manufacturing are not impacted. This is indeed reassuring, as there is little reason for India to cede too much ground when the gains are perhaps not exceptionally promising.

In a nutshell, India seeks fewer non-tariff barriers in 60 per cent of the goods exported which are already duty-free, lower tariffs in labour-intensive exports such as leather, textiles, jewellery, and above all freer access to the UK of its IT and healthcare professionals, besides students. India exported goods worth $11.4 billion in FY23 to the UK, and imported goods worth $8.9 billion. In addition to a $2.5 billion trade surplus in goods trade, India enjoys a similar surplus with respect to services trade where the sums involved are similar. Most of the services trade takes place through remote engagement, or Mode 1 in trade parlance, which suggests the potential for the UK to relax its immigration for short-term business visitors to boost high-value services exchanges. For a Conservative government that is committed to ‘Brexit’ and its underlying anti-immigration stance, it would be hard for them to concede ground, particularly with elections due later this year. For perhaps the same reason, India may not get much by way of concessions in social security payments for those who are temporarily residing in the UK. In fact, India’s FTA pacts have generally not helped in lowering barriers to the movements of its professionals, with the possible exception of the one with the UAE.

Indeed, India’s core interest lies in negotiating the UK rules on visas and a mind-boggling range of non-tariff barriers. Intriguingly, it is the UK, which has entered into a recession and should ideally be keen to trade and invest more in India post Brexit, which is playing hard-ball in the talks. As an assessment by Global Trade Research Initiative points out, India should be wary of ceding ground in the areas of government procurement (allowing UK firms to sell to the Indian government, even as India’s firms in the UK may not stand a good chance), cross-border data flows, labour, environment (the imposition of a carbon border adjustment tax that would be a 20 per cent tariff) and intellectual property rights (an area where UK’s pharma majors would be keen). The UK expects lower tariffs in scotch whiskeys, electric vehicles, chocolates, lamb meat, precious metals, metal scrap, petroleum products, medicines and cosmetics. Some duty reduction in scotch whiskey can be considered for gains elsewhere. But the services sector holds the key, given the 1.8 million Indian diaspora.

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