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Info Service on Free Trade Agreements Yerevan, 7 May (D. Ravi Kanth) — India and the United Kingdom on 6 May finalized a much-delayed bilateral free trade agreement (FTA), with the Indian Prime Minister Narendra Modi claiming it as a “historic milestone” while his British counterpart Keir Starmer touted it as a “landmark deal”, amidst claims of potential gains worth billions of dollars. Talks between India and the UK on the bilateral FTA appear to have been accelerated in the wake of US President Donald Trump’s imposition of tariffs globally last month, with London and New Delhi keen on developing closer trade ties, said the Financial Times in a news report on 6 May. The Indian Prime Minister posted the following comment on the social media platform X on 6 May: “In a historic milestone, India and the UK have successfully concluded an ambitious and mutually beneficial Free Trade Agreement, along with a Double Contribution Convention.” To recall, the Modi government, when it came to power in 2014, remained opposed to free trade agreements that were concluded by the previous Congress government. In fact, it had walked out of the Regional Comprehensive Economic Partnership (RCEP) agreement between 15 Asia-Pacific countries that included China, Korea, Japan, Australia, New Zealand, Indonesia, and Singapore among others. Now, for India, bilateral free trade agreements are being characterized as “landmark” agreements. “These landmark agreements will further deepen our Comprehensive Strategic Partnership, and catalyse trade, investment, growth, job creation, and innovation in both our economies,” Prime Minister Modi said in his post on X. Meanwhile, British Prime Minister Starmer said the agreement with India – which was finalized on 6 May after more than three years of negotiations under successive governments – is a “landmark deal” that will “grow the economy and deliver for British people and business.” The immediate beneficiaries of the trade deal in Britain would be the car and alcohol industries. According to a news report in the Guardian on 6 May, India’s tariffs on British whisky and gin will be halved from 150% to 75% before reducing to 40% by the 10th year of the deal. Tariffs on British cars will be reduced from about 110% to 10%, with quotas set on the number of British cars that can be exported to India and vice-versa, according to the news report. According to a news report in The Hindu on 6 May, the highlights of the India-UK FTA include: * 99% of Indian exports to benefit from zero duty in the UK market. * Indian import duty will be slashed, locking in reductions on 90% of tariff lines, 85% of these becoming fully tariff-free within a decade. * India reducing tariffs for whisky, medical devices, advanced machinery, and lamb, making UK exports more competitive. * Goods with reduced import duties for Indian consumers: cosmetics, aerospace, lamb, medical devices, salmon, electrical machinery, soft drinks, chocolate and biscuits. * Products with cheaper prices for British shoppers: clothes, footwear, and food products including frozen prawns. * Automotive tariffs will go from over 100% to 10% under a quota. * Three-year exemption from social security payments for Indian employees working in the UK. * Export opportunities for labour-intensive sectors such as textiles, marine products, leather, footwear, sports goods and toys, gems and jewellery, engineering goods, auto parts and engines, and organic chemicals. The Indian Prime Minister’s Office said the two leaders agreed that expanding economic and commercial ties between India and the UK remain a “cornerstone” of the increasingly robust and multifaceted partnership. “The conclusion of a balanced, equitable and ambitious FTA, covering trade in goods and services, is expected to significantly enhance bilateral trade, generate new avenues for employment, raise living standards, and improve the overall well-being of citizens in both countries,” the Prime Minister’s Office said. While the economics of a bilateral free trade agreement will always show positive impacts on the exports and imports of both countries, one needs to look at the net impact on the countries as well as the impact of the provisions agreed to in the FTA, said an analyst, who asked not to be quoted. The very fact that the UK’s weighted average tariff vis-a-vis India in 2023 was 0.5% as compared to India’s 20% means that the net increase in the exports of the UK to India will be higher. Several questions remain unanswered at this juncture. For example, if India is compromising more on tariff reduction, what is India getting in return? Is the three-year exemption from the social security certificate for Indian employees working in the UK sufficient? Have any mutual recognition agreements of qualifications been pushed by India? Is India gaining in terms of the quota of visas available for Indians to work in the services sector in the UK? Last year, India signed a significant Trade and Economic Partnership Agreement (TEPA) with the European Free Trade Association (EFTA) countries, which include Switzerland, Iceland, Norway, and Liechtenstein. The TEPA was concluded after 21 rounds of negotiations that spanned a period of ten years. The TEPA included a chapter on investment promotion with the signatories promising a commitment of $100 billion in investment over 15 years in India. However, the Swiss trade minister said that governments cannot vouch for complying with the promise of $100 billion in investment, suggesting that it is the private companies that carry out their investments. Though India was able to reject a push for data exclusivity in the TEPA, it is not clear whether there was such an iron-clad conditionality on intellectual property rights, said a person, who asked not to be quoted. INDIA-US FTA At this moment, India’s foremost trade priority is to conclude a bilateral free trade agreement with the US, which is calling for steep reduction commitments. Washington appears to be insisting on substantial removal of non-tariff barriers as well as the Minimum Support Price guaranteed by India to its poorest farmers. Under the proposed bilateral FTA with India, the US is pushing hard for sweeping changes in India’s policies, ranging from tariff reductions to regulatory overhauls that could benefit American firms and exporters. In the agriculture sector, the Global Trade Research Initiative (GTRI), a New Delhi-based think-tank with which the Indian government holds consultations, said that the US demands include scaling back India’s Minimum Support Price (MSP) programs for crops like rice and wheat, removing restrictions on genetically-modified (GM) imports, and lowering farm tariffs. The US also wants India to remove GM-free feed certification and facility registration protocols that effectively bar American dairy exports to India. In short, India has now seemingly entered the “uncharted waters” of free trade agreements with countries that seem to have different economic conditions than India, where the per capita income of its 1.24 billion population is only $2,400, said several people, who asked not to be quoted. +
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