New Labour government may green light FTA with some modifications, says economic think tank GTRI

New Delhi: With the Labour Party all set to come to power in the UK, India may expect approval to the proposed free trade agreement between the two nations, albeit with minor adjustments, economic think tank GTRI said on Friday.

Keir Starmer will officially become the UK's prime minister later in the day after his Labour Party gained a landslide majority in Thursday's parliamentary elections and dealt a bruising defeat to incumbent Rishi Sunak's Conservative Party.

The Global Trade Research Initiative (GTRI) said the Labour Party is expected to recognize the substantial benefits of the FTA as it opens access to a large and growing Indian market, bypassing high tariff barriers.

GTRI Founder Ajay Srivastava expressed hope that the Labour Party will notice that the FTA with India offers a significant price advantage to the UK exporters, potentially boosting their exports to India almost immediately.

"For the proof, it can look at the historical precedents, such as the steady improvement in ASEAN, Japanese, and South Korean exports to India following their respective FTAs with India," he said adding as the Labour Party takes charge, it may give approval to the FTA with minor adjustments.

He added that the agreement is nearly finalized, and with a few minor adjustments like curtailing number of visas for Indian professionals, the Labour Party may likely give its approval.

"This could set the stage for the agreement to be signed as early as October this year," Srivastava said.

However, GTRI suggested that India should focus on two issues - Carbon Border Adjustment Measure (CBAM) and non-traditional subjects like labour, environment, gender, and intellectual property rights - in the pact.

Historically, India has resisted incorporating these topics into FTAs as they often require domestic policy changes.

Also, the potential imposition of non-tariff barriers, particularly those related to environmental and sustainability standards, is also a concern.

It added that even if the UK agrees to eliminate tariffs on sectors like textiles, Indian exports might still need to meet stringent UK sustainability requirements and this could adversely affect Indian exports, especially in labour-intensive sectors.

Against this backdrop, it said India must negotiate firmly on these issues to ensure that the market access gained through tariff elimination is not undermined by other barriers.

" It's imperative that India proceeds with caution, engaging in extensive consultations and strategic negotiations to safeguard its interests. The goal should be to achieve a balanced agreement that benefits both countries while protecting Indian exporters from unfair disadvantages," Srivastava said.

On CBAM, he said as India finalizes its FTA with the UK, it must seek clarity on how this carbon tax will impact its exports.

Without this, the benefits of tariff reductions could be negated by the imposition of high carbon taxes.

The UK's proposed CBAM poses a significant concern for Indian exports.

CBAM would result in the UK gradually imposing higher taxes on imports based on their carbon footprint, potentially far exceeding the UK's current average tariff rates of less than 2 per cent.

While the FTA might reduce or eliminate tariffs, Indian exports could still face hefty carbon taxes, unlike UK exports to India, it added.

India and the UK launched talks for an FTA in January 2022 to boost economic ties between the two nations.

There are 26 chapters in the agreement, which include goods, services, investments and intellectual property rights.

The bilateral trade between India and the UK increased to USD 21.34 billion in 2023-24 from USD 20.36 billion in 2022-23.