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Truss faces fresh headache as India-UK free trade deal stuck

Bloomberg | 12 October 2022

Truss faces fresh headache as India-UK free trade deal stuck

By Shruti Srivastava

India’s reputation as one of the world’s toughest trade negotiators is becoming more than an inconvenience for UK Prime Minister Liz Truss.

While Prime Minister Narendra Modi pledged to prioritize rapid “early harvest” trade agreements in 2021, India has signed just two new deals — one with United Arab Emirates and another with Australia. Now prospects for a much-touted pact with the UK look to be getting bogged down.

For Truss, India’s stance may force her to offer concessions because the pressure to strike big trade deals is already high. Failure will provide another blow to her post-Brexit vision that the UK can clinch new deals in markets that were previous closed off due to its membership in the European Union.

The US has already signaled that a deal with the UK is off the table in the short run.

Any failure to conclude a trade accord with Britain will be a missed opportunity for India, a nation upon which many economies are pinning their hopes amid intensified geopolitical struggles between the west and China. The deal, if clinched, would be India’s biggest and most ambitious free-trade agreement to date.

Immigration Concerns

But talks between India and the UK have hit a snag over easier access to thousands of skilled workers from the South Asian nation that is likely to push finalizing a free-trade agreement beyond the October deadline.

New Delhi’s position has hardened in the ongoing negotiations amid concerns raised by UK Home Secretary Suella Braverman on migration from India. The comments made last week prompted India to say both the nations should “honor” the “understanding” with regards to migration mobility.

New Delhi is also seeking to claw back half a billion pounds in payments made by Indian workers toward Britain’s social security system as part of the deal, people familiar with the matter said. Further, the UK’s offer to restrict movement of skilled workers would skew the proposed trade deal in favor of Britain and wouldn’t be a win-win for both nations, the people said.

Quality Not Speed

Modi’s government this year has balked at the trade portion of the Biden administration’s Indo-Pacific Economic Framework and entirely backed out of the China-led Regional Comprehensive Economic Partnership back in 2020.

Max Blain, official spokesman for Truss, said the government was still hoping to get a trade deal with India by late October “that would put the UK front of the queue to supply India’s growing middle class and boost the UK economy by more than £3 billion by 2035.”

Blain declined to comment on remarks reportedly made by Braverman about migration. “There are complex negotiations ongoing across a range of issues,” he told reporters in a regular briefing on Wednesday.

India’s trade ministry did not respond to an email seeking comment.

Britain and India launched negotiations for a free-trade agreement in January with an aim to conclude the talks by end of October this year. But that deadline is set to be missed given the lack of consensus, the people said asking not to be identified as the discussions aren’t public.

The deal would also act as a springboard for India — which recently overtook the UK to become the world’s fifth-largest economy — to seek an FTA with the EU, which along with the US, is a major export destination.

With 1.4 billion people, India is the world’s largest democracy and the world’s third-largest economy in purchasing power parity terms, according to the World Bank.

Other Hurdles

As the deadline for the conclusion of talks nears, India has yet to agree on issues critical to the UK including lowering import duties on automobiles and Scotch whisky — one of Britain’s major demands — as Modi’s government awaits headway on issue of skilled workers’ mobility.

Other issues holding up the negotiations include the UK’s insistence on getting exemption from rules on data localization which impact sectors such as financial services and greater access to India’s government contracts. India has expressed its inability to relax the data localization rules due to domestic laws, the people said.

Both sides envisage the deal to double bilateral trade by 2030. The total trade between India and the UK stood at over $17 billion in 2021-22, according to Indian government data.

 source: Bloomberg