Explained | India's proposed free trade agreement with the UK

New Delhi: India has signed 13 free trade agreements (FTAs) and six preferential pacts with its trading partners to promote exports of goods and services, besides ensuring greater market access for the domestic industry.

Since 2014, the country has signed 3 such agreements with Mauritius, the UAE and Australia, and EFTA (European Free Trade Association).

India is actively negotiating similar pacts with the UK and EU.

On February 24, Commerce and Industry Minister Piyush Goyal and UK Secretary of State for Business and Trade Jonathan Reynolds announced resumption of negotiations for the proposed FTA between the two countries.

The India-UK negotiations are resuming after a gap of over 8 months. The talks were launched on January 13, 2022. So far 14 rounds of talks have been completed.

What is an FTA?

A free trade agreement is a pact between 2 or more countries to eliminate or reduce import duties on a maximum number (90-95 per cent) of goods traded between them. It also aims to minimize non-trade barriers on a significant portion of imports from partner nations while easing regulations to boost service exports and bilateral investments.

What are the different types of trade agreements ?

FTAs are sometimes referred to by different names depending on their scope and depth of economic cooperation. These include PTA (preferential) or RTA (regional), or BTA (bilateral). WTO uses the abbreviation RTA to denote all types of such economic engagements. In a PTA, duties are eliminated on a specified number of goods (India-Thailand).

CECA (Comprehensive Economic Cooperation Agreement - India-Singapore) or CEPA (Comprehensive Economic Partnership Agreement - India-Korea, Japan) or TEPA (Trade and Economic Partnership Agreement) are comprehensive in nature.

What are the benefits of these pacts?

• Zero-duty entry into partner country markets helps in the diversification and expansion of export markets.

• Level playing field vis-a-vis competitors who may have already entered FTAs with partner countries.

How do countries protect the interest of domestic companies in these agreements?

FTAs provide for maintaining sensitive, negative or exclusion lists of items on which limited or no tariff concessions are granted.

Also, in case of surge in imports and injury to the domestic industry, a country is allowed to take recourse to trade remedial measures such as anti-dumping and safeguards on imports.

With which countries has India signed these pacts?

India has inked trade deals with Sri Lanka, Bhutan, Thailand, Singapore, Malaysia, Korea, Japan, Australia, the UAE, Mauritius and ASEAN and EFTA blocs.

According to the think tank Global Trade Research Initiative (GTRI), India has shifted its FTA focus from Eastern (ASEAN, Japan, Korea) to western partners after securing deals with key Asian economies. India is now prioritizing FTAs with the UK, EU, and US to expand exports and strengthen trade ties with major western economies.

What is the aim of India-UK FTA?

• To boost trade and investment by reducing tariff and non tariff barriers and improving market access.

• It would also help expand opportunities in technology, healthcare, and education.

What gains would India achieve from the FTA in merchandise trade?

In FY24, India's merchandise exports to the UK were valued at $12.9 billion. GTRI Founder Ajay Srivastava says the pact is expected to have a limited impact on increasing these exports because over half of Indian products already enter the UK with low or no tariffs.

The average tariff on goods imported from India into the UK is 4.2 per cent. There won't be any benefit from reducing duties for Indian products worth $6.8 billion, as they already face no tariffs in the UK, even without the FTA.

These products include petroleum products, medicines, diamonds, machine parts, airplanes, and wooden furniture, he said.

However, there will be gains from reducing duties for Indian exports valued at $6.1 billion, such as textiles, apparel (shirts, trousers, women's dresses, bed linen), footwear, carpets, cars, marine products, grapes, and mangoes.

These products face relatively low to moderate tariffs in the UK.

GTRI said that India's merchandise imports from the UK were $8.4 billion in FY24. UK exports of $7.6 billion covering 91 per cent value of total merchandise imports from the UK enter India on payment of average to high tariffs duties.

For example, the tariff on cars is 100 per cent and on scotch whisky and wines it is 150 per cent. The simple average tariff in India on goods imported from the UK is 14.6 per cent.

The UK products that are expected to gain from this FTA include precious metals, cars, make-up items, metal scrap, petroleum products, scotch and other alcohol, machinery and integrated circuits.

What are the major demands of India and the UK in this FTA?

India is looking for greater access for its students and professionals in the UK market, social security agreement, besides market access for several goods at nil customs duty. On the other hand, the UK is seeking a significant cut in import duties on goods such as scotch whiskey, electric vehicles, lamb meat, chocolates and certain confectionary items.

Britain is also looking for more opportunities for UK services in India in segments like telecommunications, legal and financial services, including banking and insurance.

What is the proposed bilateral investment treaty (BIT) between India and the UK ?

BITs help promote and protect investments in each other's countries. One key difference in these negotiations is the mechanism for settling disputes. India wants foreign firms to exhaust local judicial remedies before resorting to international arbitration, but its partners resist due to the lengthy nature of Indian judicial proceedings.

GTRI says that no conclusive research is available to show a link between signing of BIT and increase in investments, though it provides an assurance to investors against arbitrary changes in rules and hence promote investments.