Nikkei Asia | 22 March 2023
India-UK trade talks home in on digital trade, investor protection
By RHYANNON BARTLETT-IMADEGAWA and KIRAN SHARMA
LONDON/NEW DELHI — Indian and British negotiators will be seeking a landing zone on digital trade and investor protection as they hold another round of free trade talks in New Delhi this week.
So far, 13 of 26 policy areas that cover topics such as goods, services, investments and intellectual property rights have been closed. A top official of India’s commerce ministry noted that "good, positive" momentum is present across the areas.
Kevin McCole, managing director of the U.K. India Business Council, says a free trade agreement would bring "real growth" in digital trade because of respective strengths in the sector and the geographical distance between the countries.
"Data and digital trade only has to navigate regulatory barriers," he said. "So if regulatory alignment is agreed, then there is scope for substantial growth in U.K.-India trade via digital services and digitally enabled services."
Services account for 44% of U.K. exports to India and the same percentage of imports from India.
But in India, a debate over domestic data legislation may be hindering the discussions.
Tech associations favor the liberalization of digital trade but with certain caveats such as "’if I want to share certain data with you, you should also assure me that this data would not be pilfered or used for other purposes," said Pankaj Jha, a professor at O.P. Jindal Global University in India’s northern Haryana state.
Natasha Schou, Head of Asia Pacific at TheCityUK, an industry body representing financial and professional services, points to the U.K.-Japan free trade deal as "a really useful benchmark to follow for other FTAs," as well as the Digital Economy Agreement with Singapore.
The deal with Japan commits both sides to not adopt unjustified data localization measures, not to impose customs duties on electronic transmissions, and works towards recognising e-signatures among other measures.
The negotiating teams could be hamstrung until India’s domestic data bill winds its way through parliament. In its current form, the bill would allow for data trade arrangements with trusted partners, which analysts say is promising in the context of bilateral agreements.
"I think the final draft negotiations, which are still under consideration, will be concluded after the Indian parliament passes this bill, and it gets ratified," Jha said, adding that it might take until November or December for a trade deal to be reached.
It is also possible that an FTA could be concluded before the bill makes it through the legislature, albeit with a caveat to continue discussions on digital trade.
"There’s goodwill and positive intention from both sides," a source close to the negotiations told Nikkei Asia. "But it may take a little bit longer because of issues [on data legislation] the governments are unable to control at the moment ; legislation needs to be passed."
Regarding the legislative tangle, the FTA negotiators could commit themselves to fast-tracking data discussions after the bill passes. This is "a mechanism that could be deployed so as to not delay an overall deal while continuing to a positive conclusion of negotiations on data," the source said.
There is recognition that the agreement should include provisions that allow reviewing digital trade elements and adapting them as the environments in India and the U.K. evolve.
"Given progress made to date and the 2024 elections [expected in both countries]," the same source told Nikkei Asia, "I don’t think the negotiations are going to be getting into next year or beyond." The person answered "spring, summer" when asked when there might be a successful conclusion.
Asked about the possibility of talks wrapping up by the middle of this year, Indian Commerce Secretary Sunil Barthwal last month said the negotiations have been progressing and that only after the March round would he be able to convey how much more time it would take to conclude them.
Harsh V. Pant — a professor of international relations at King’s College London and vice president of studies and foreign policy at the New Delhi-based Observer Research Foundation, a think tank — agrees that the negotiators are likely shooting for the end of the year to reach a final deal. Failing that, he said, "the question is ... will they go for an early harvest agreement or for low-hanging fruits."
He cited the example of Australia, with which India made an interim agreement while continuing to negotiate a comprehensive pact.
As for the current talks, Britain’s asks for duty concessions around Scotch whisky and automobiles are "a bone of contention," Pant said.
Corporations are also hoping the negotiators make progress in regard to visas and migration. In addition, an investor protection element is being sought. Several years ago, India unilaterally terminated an investor protection agreement with the U.K.
The India-U.K. FTA is an "opportunity to bake in something for the longer term that cannot be unilaterally removed by either country," Schou of TheCityUK said. "And that certainty is critical."
India in 2015 released a model text for a bilateral investment treaty that according to McCole of the UK India Business Council is "not seen as attractive because of the arbitration process. ... [E]very Indian legal channel has to be exhausted" before a party can file for arbitration, he said.
He added that "businesses would like to have the ability to go to arbitration sooner rather than spend many years going through the Indian courts before getting to the arbitration process."
A U.K. government spokesperson said : "We are working hard on a deal that is best for the U.K., and we’re not tying ourselves to a deadline. We will only sign when we have a deal that is fair, reciprocal and ultimately in the best interests of the British people and the economy."