In shadow of US tariff, India back to table for trade talks with UK, EU

The trade deal with the UK, talks for which began in 2022, assumes significance as it would be India’s first full-fledged agreement with a Western country, facilitating deeper economic integration with a major global services sector leader.

It is also considered crucial as it could serve as a template for trade deals with larger Western trade partners such as the European Union.

On Thursday, amid growing tension in the trans-Atlantic relationship between US and Europe, the EU College of Commissioners is set to meet Prime Minister Narendra Modi to further strengthen bilateral relations based on “growing convergences”.

UK’s business and trade minister Jonathan Reynolds with Commerce Minister Piyush Goyal at the National Crafts Museum. (X@PiyushGoyal)

India and the EU are also expected to conduct bilateral ministerial meetings and engage in a trade and technology council, which was launched to resolve issues such as the contentious Carbon Border Adjustment Mechanism (CBAM).

“India and the UK have decided to return to the negotiating table for a trade deal that was stalled due to elections. The contours of the deal needed to be reassessed. The two countries are actively negotiating on three different fronts—free trade agreement, bilateral investment treaty, and a Double Contribution Convention Agreement. All three are running in parallel and are interlinked,” Commerce Minister Piyush Goyal said Monday.

With the growth trajectory being different in both the countries, the potential business opportunities were much different and, therefore, India had requested the UK to consider a social security pact.

It is a long-standing demand of Indian businesses operating in Britain to cut down on the additional cost burden associated with bringing in skilled Indian professionals on a short-term basis.

Notably, the compulsory National Insurance (NI) contributions of skilled Indian professionals in the UK on temporary visas remain an additional cost burden of about 500 British pounds per employee a year, over and above all other taxes and health surcharge paid towards the National Health Service (NHS), as per data from 2021.

India has Social Security Agreements (SSAs) with countries like Belgium, Germany, Switzerland, France, Denmark, Korea, and the Netherlands.

“Trade ministers from both countries will kick-start negotiations on a modern economic deal with two days of focused discussions — the first time both negotiating teams have formally gathered under this government,” the British High Commission said in a statement.

Trade experts said negotiations with Western trade partners could receive fresh momentum amid the uncertainty created in the global trade order by US. Apart from close trade partners such as Canada and Mexico, Trump has also threatened tariffs on the EU.

Tariffs and Visas

Responding to a question on India’s high tariffs and the UK’s stance on the issue, Goyal said India’s tariffs are in place to protect domestic businesses from non-market economies, and that the trade deal would result in lower tariffs between the two countries.

This comes amid criticism from Trump and threats of reciprocal tariffs that could impact India’s agricultural sector, which traditionally enjoys high duty protection.

India’s tariff regime has been a concern for trade partners, as the country has one of the highest customs duty rates on imports globally.

While the average tariff on goods imported from India into the UK is 4.2 per cent, the average tariff in India on goods imported from the UK is 14.6 per cent. On visas, the minister said immigration has never been part of the deal and that short-term business visas included in trade negotiations are separate from general visa policies.

Market access for whisky

While the UK has asked India to reduce duties on cars, whisky, and other items, India has sought better access for its services sector workforce in the UK. Negotiations on cars and whisky have been contentious, as the Indian industry has been seeking greater access to the UK market. Indian whisky manufacturers have urged the UK to ease its three-year maturation rule, which acts as a barrier, while New Delhi is also seeking duty concessions in the auto sector, particularly in the EV segment.

British Trade Secretary Reynolds said that business mobility visas, which deal with short-term work arrangements, are one of the key demands of UK businesses, adding that the trade deal with India is a “top priority.”

Amid talks for an investment treaty, the British High Commission said that Investment Minister Poppy Gustafsson will address investors in Mumbai and Bengaluru.

“India has been the second-largest source of FDI into the UK for five consecutive years in terms of the number of projects. In terms of value, the most recent statistics show a 28 per cent year-on-year increase in investment stock at the end of 2023,” the High Commission said.

Bilateral trade between India and the UK increased to $20.36 billion in 2022-23 from $17.5 billion in 2021-22.

Deal with the EU

Meanwhile, nine rounds of talks have happened between India and EU, with the 10th round of negotiations set to take place from March 10-14 in Brussels. In the ninth round, discussions covered a range of issues, including goods, services, investment, government procurement, rules of origin, sanitary and phytosanitary (SPS) measures, and technical trade barriers, the Commerce Ministry had said in a statement last month.