Nothing So Great About Free Trade with Great Britain
26-08-2023
11:36 AM
1 min read
Why in News?
The article critically analyses the India-UK Free Trade Agreement (FTA), which is expected to be concluded by March 2023 despite limited benefits accorded to India in the deal.
What is a Free Trade Agreement (FTA)?
- FTA is an agreement between two or more countries to minimize barriers to imports and exports of products and services among them.
- It includes reducing tariffs, quotas, subsidies or prohibitions which could enhance exchange of goods and services across borders.
- The agreement could be comprehensive and include goods, services, investment, intellectual property, competition, government procurement and other areas.
H1: Background of India-UK bilateral relationship
- The India-UK bilateral relationship was upgraded to a Strategic partnership in 2004.
- India is UK’s 12th largest trading partner and accounted for 1.9% of UK’s total trade by the end of 2022. UK is the 7th largest export destination for India.
- Bilateral trade: The bilateral trade between the two countries increased to USD 17.5 billion in 2021-22 compared to USD 13.2 billion in 2020-21.
- Trade surplus in favour of India: For example, India's exports stood at USD 10.5 billion in 2021-22, while imports were USD 7 billion.
- Investment: The UK is also a key investor in India and has invested USD 32 billion in foreign direct investment (FDI) inflows between 2000-2022.
- Major market for Indian IT services: The UK is one of the largest markets in Europe for Indian IT services and services trade accounts for 60% of overall annual commerce between India and the UK.
- India's main exports to the UK: These include ready-made garments and textiles, gems and jewellery, engineering goods, petroleum and petrochemical products, transport equipment and parts, spices, metal products, machinery and instruments, pharma and marine items.
- India’s major imports from UK: These include precious and semi-precious stones, ores and metal scraps, engineering goods, professional instruments, non-ferrous metals, chemicals and machinery.
- Roadmap 2030: An ambitious ‘Roadmap 2030’ was adopted in 2021 to elevate bilateral ties to a ‘Comprehensive Strategic Partnership’.
- The ‘Roadmap 2030’ also aimed to expand ties in trade and investment, defense and security, climate change, healthcare and people-to-people ties.
- Enhanced Trade Partnership’ (ETP): It was also launched to set an ambitious target of more than doubling bilateral trade by 2030.
India-UK FTA
- India-UK begin formal negotiations for an FTA in 2022, to obtain a “fair and balanced” FTA that would cover more than 90% of tariff lines and enable bilateral commerce to attain its target of around $100 billion by 2030.
- This “new-age FTA” includes topics like intellectual property rights, geographical indications, sustainability, digital technology, and anti-corruption in addition to products, services, and investments.
- The discussions are also ongoing on transitions from fintech to green-tech and automation to Artificial Intelligence.
What is the significance of India-UK FTA
- For UK: The UK Government has identified the ‘Indo-Pacific tilt’ as one of the core components of its international and export strategies, which includes deepening trade relations with India.
- For Britain, a successful conclusion of an FTA with India would provide a boost to its ‘Global Britain’ ambitions as the UK has sought to expand its markets beyond Europe since Brexit.
- Also, India being a growing economy, a growing middle class and big consumer market makes it an attractive trading partner for the UK.
- For India: The UK is a regional power in the Indo-Pacific and has also confirmed £70 million of investment funding to support the usage of renewable energy infrastructure in India.
- The duty concession under the pact would help Indian labour-intensive sectors like textiles, leather, and gems and jewellery to boost exports in the UK market.
- The FTA will give easy market access for Indian fisheries, pharma, and agricultural products.
Factors impeding the conclusion of FTA
- India’s expectations from the FTA: India wants to increase exports of textiles, food and beverages, pharmaceuticals, tobacco, leather and footwear, and agricultural items like rice to the UK.
- India also wants access to allow Indian legal services in the UK and pushing for relaxation on visas for Indian workers in the UK.
- UK expectations from the FTA: The UK is keen to gain India market access for transport equipment, electrical equipment, medical devices, chemicals, motor vehicles and parts etc. which could impact local industry players and boost the manufacturing ecosystem.
- It is particularly keen on India reducing its import duties on Scotch Whiskey and automobiles, which is currently around 150% and 125%, respectively.
- UK businesses make a strong case to ban the localization of data and support cross border data flows via FTA deal as presently India’s data localization rules prevent foreign companies taking data out of India.
- UK also wants a separate chapter on financial services and is keen to bring labour into the FTA’s ambit.
What are the possible risks of the FTA on India's economy
- Limited gains in exports: India can expect a modest increase in India's exports of goods and services, but UK stands to gain more than India.
- A study by the UK's department of international trade revealed that the India-UK FTA could increase India's bilateral exports to the UK by £10. 6 bn, and that of the UK by £16. 7 bn by 2035.
- Unemployment risk: Job losses are being feared in sectors where imports from the UK would displace domestically produced goods and services in India, e.g., opening services sectors, particularly financial services.
- Limit domestic production: India provides favourable treatment to Indian manufacturers and service suppliers by government procurement.
- However, FTA provisions demand inclusion of UK firms to bid for public sector contracts in India. This could curtail the ability of government to use policy instruments to boost the domestic production of goods and services.
- Restrict generic medicines supply: Doctors Without Borders warned recently that the intellectual property provisions tabled by the U.K. are aimed to curtail the production, supply and export of affordable generic medicines from India.
- Risk of harmonization of laws: The demand for “harmonization” of Indian patent law with the U.K.’s laws will lead to the dilution of important provisions in the Indian patent system like “evergreening” that are necessary for manufacturing generic medicines and vaccines.
- Limit climate-friendly policies: The green technologies are likely to be created in the developed countries and India needs to implement innovative policies to not become overwhelmingly dependent on green imports.
- However, it is apprehended that the FTA could contain environment-related obligations that could hinder government's efforts aimed at transition to a low-carbon economy being driven predominantly by domestic players.
- Curtail digital leverage: The data sets that represent India's consumers present an estimated opportunity of more than $200-500 billion. However, it would harm India’s economic interests if FTA provisions constrain India from leveraging its data advantage.
Conclusion
- India is on track to become the world's third largest economy by 2050, having already surpassed the UK to become the fifth largest economy, making it the UK's preferred partner.
- However, a rigorous and impartial assessment of the anticipated economic benefits and costs of the India-UK FTA is required for the sake of the country's robust economic future.
Q1) Which countries have free trade with India?
So far, India has signed 13 Free Trade Agreements (FTAs) with its trading partners. It includes Sri Lanka, SAFTA countries, Nepal, Bhutan, Thailand, Singapore ASEAN countries, South Korea, Japan, Mauritius, UAE, Malaysia, and Australia.
Q2) Are FTAs legally binding?
Yes. FTAs are legally binding agreements under international law.
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