Financial Express - 13 December 2023
Poll-year cloud over FTA
Negotiations over a free trade agreement between India and the UK are still ongoing, with a UK team recently flying into New Delhi to resolve the outstanding issues. Reports are that they are in the final stretch, which is usually reserved for the toughest unresolved issues before both nations face elections next year. There is therefore a short window to clinch an agreement. The FTA is no doubt a top priority at the highest political levels of both nations. India wants an agreement that is “balanced and comprehensive”. UK PM Rishi Sunak has indicated that he is not in a hurry to secure a deal and would not “sacrifice quality for speed”. Trade deals entail a complicated process of give and take for greater access to each other’s markets. If India seeks greater market access, it must also allow the UK to sell more of its goods and services to expand bilateral trade worth 38 billion pounds in the four quarters to the end of Q2 2023.
“It’s the Pareto principle, that the few bits left are always the toughest bits,” stated the UK’s business and trade secretary, Kemi Badenoch, in response to queries from the Parliament’s Business and Trade Committee in September. The Pareto principle, also known as the 80/20 principle, is named after Italian economist Vilfredo Pareto that states that 80% of outcomes come from 20% of causes. There are 26 chapters in the FTA, which include goods, services, investments and intellectual property rights. Around 80% of them are closed with the remainder in advanced stages of negotiation. An investment treaty is also being negotiated along with the FTA. Among the 20% tough chapters to resolve include rules of origin, tariff duty concessions on electric vehicles, Scotch whisky and liberalisation of financial services. On IPRs, the UK wants India to go beyond the WTO TRIPS agreement while India wants to protect its generics industry.
A critical area of interest for India is free visa movement for its professionals, which the UK is resisting. To curb legal migration, the UK recently raised the minimum salary thresholds for skilled worker visas and has put the student graduate visa route “under review”, both of which are not good news for India. Badenoch indicated in interviews that while concessions on business mobility are possible, Indians will not receive the same kind of deal as Australia—with which the UK signed an FTA—permitting under-35s to live and work in the UK for three years. The UK, for its part, is frustrated with the lack of movement towards the opening up of the Indian market for professional services in law and accountancy, according to the Financial Times.
For such reasons, India-UK FTA negotiations are bound to be tough with an additional complication that national elections are due in both nations in 2024. This would indeed make talks “difficult” if a deal is not finalised before then. The big challenge for both nations is to revive the economic component of the bilateral relationship that is somewhat underwhelming considering the long historical association. While the FTA negotiations will take their own course, beyond unrealistic deadlines like Diwali, both partners can still follow the roadmap 2030 on trade and step up investments in each other’s economies, besides boosting cooperation in defence and security, health, climate change and people-to-people contacts to bolster a comprehensive India-UK strategic partnership.