The UK trade deal, and cues for the big one — the pact with the US

India and the US have concluded a week-long round of trade negotiations earlier this month to finalise an interim trade deal seen as crucial for New Delhi to skirt reciprocal tariffs and steal a march over its Asian rivals ahead of the fresh deadline of August 1. Unlike the UK deal, the negotiations with the US are clearly rushed. But then, India could face tariffs of up to 26 per cent if both countries fail to reach an agreement by a repeatedly changing deadline.

The UK deal does offer some takeaways:

📌 Agriculture was a clear red line area, if the UK deal is anything to go by. India has excluded several high-sensitivity agricultural products from any tariff concessions, including dairy items, fresh apples, walnuts, whey and modified whey, blue-veined cheese, and specific seed categories such as vegetable seeds and sugar beet seed. The UK too had excluded various meat products and egg-based items, among others, from discussions.

With the US, talks have faced hurdles over agri products, with the US pushing for market access for genetically modified (GM) products such as soya and corn, along with broad-based access across sectors. However, the farmers’ body Indian Coordination Committee of Farmers Movements (ICCFM) has urged the government to exclude all aspects of agriculture from the US trade deal in order to protect the interests of Indian farmers.

📌 What is clear is that the trade deal with the US is likely to be less focused on sectors and more focused on the headline number, unlike the UK deal. But like with the UK, in its talks with the US, India is likely to push for market access in labour-intensive sectors, while trying to ensure a significant tariff differential compared to its Asian peers. After the UK deal, India’s average tariff on British products is projected to drop from 15 per cent to 3 per cent.

Now, if the final tariff deal offered to India by Washington DC is between 10 per cent and 15 per cent, the tariff points offered to the UK and Japan, New Delhi should have reasons to be satisfied. The tariff advantage starts to diminish if the tariff goes over 15 per cent and comes closer to 20 per cent, as was offered by the US to Vietnam. A transhipment clause, of the kind slapped on Vietnam, could be a problem for India, given that a lot of Indian exports have inputs and intermediate goods in sectors such as pharma, engineering goods and electronics coming in from outside, including China.

Also, clarity on the final American duty offer on China is a number that negotiators will be looking at, given the implicit assumption in New Delhi that the Trump administration will maintain a tariff differential. For Indian negotiators, other tariffs, over and above the US baseline tariffs of 10 per cent and the sectoral tariffs on steel and aluminium, is an added complication. Sectoral tariffs such as the 50 per cent on steel, aluminium and copper are already impacting India’s exports to the US, and Trump’s threat of steep tariffs on BRICS countries over them buying Russian oil is a concern.

📌 With the UK, India has shown accommodation in certain areas that the other side has pushed for, which officials in New Delhi termed as part of a “structured and balanced market access offer” that followed a “development-oriented quota based liberalisation” process. For instance, India will first halve the duty on Scotch whisky from the UK to 75 per cent and then to 40 per cent over 10 years, a key demand from the British government. Duties on automobiles will be cut in a phased manner. As per the UK deal, India will lower import duties on British cars over 15 years to just 10 per cent from more than 100 per cent for luxury cars. However, the reduced rate of tariff will apply only to 10,000 units, which will rise to 19,000 in the fifth year.

What is significant from India’s perspective is that the concession framework with the UK is designed to provide market access to British exporters mostly on large engine-size ICE vehicles and high price range EVs, while simultaneously protecting sensitive segments of India’s automotive industry (mid and small size engine capacity internal combustion engine vehicles and mid and low price range EVs), the Indian government said. But then, it needs to be mentioned that the UK is home to largely luxury carmakers that manufacture cars with bigger engine displacement and high sticker price, including Aston Martin and Mini. Jaguar Land Rover already has a presence in India through Tata Motors.

The Indian side has pointed to there being no concessions given to electric, hybrid, and hydrogen-powered vehicles in first five years and the number of vehicles from ICE engines shall get deducted by the number of EV vehicles getting concessions from the sixth year onwards to maintain the total quota volume of 37,000 Units at the end of 15 years of duty concession. That could be a template New Delhi should be pushing with Washington DC too. Market access for Indian carmakers to the US could be significant.

📌 While India will first halve the duty on Scotch whisky from the UK to 75 per cent and then to 40 per cent over 10 years, from around 100-150 per cent currently, industry players said this might not really push prices of imported spirits downward significantly.

📌 India has shown some degree of realism in opening up segments of imports that are in areas where the country has been weak or those goods are needed as intermediate goods. That is being seen as a positive step, given India’s tariff structure currently has rigidities that include high tariffs on inputs and intermediate goods, which acts as a disadvantage to domestic players. With the UK, lower duties on products such as medical devices and aerospace parts could mean some positive for Indian companies in these sectors.

📌 While mobility of workers, which had been a bone of contention as India sought improved access for its services sector amid heightened sensitivities in a post-Brexit UK, both countries committed to some concessions. India maintained some regulatory carve-outs, such as in legal services, taxation, and national security, but the UK’s services offer to India is seen as more cautious and its commitments on professional mobility are limited in scope. An annual quota of 1,800 for temporary entry of traditional chefs, classical musicians, and yoga instructors is largely lip-service, especially given that no binding commitment has been made on broader visa categories, including business visitors or IT professionals. That could have resonance in the negotiations with the US. The consensus reached on the Double Contributions Convention, under which workers from India and the UK temporarily working in the other country for up to three years will only have to make social security contributions in their home countries, could be a positive for India, but it remains to be seen how British employees see this provision going forward.

📌 On labour-intensive sectors, India has pushed hard with the UK, and is likely to follow the same template with the US. Take textiles, for instance. The sector has faced substantial tariff barriers into the UK, which is India’s third-largest export destination for textiles and garmets. With tariffs coming down from 9 per cent to zero after the deal, India – the fourth-largest textile supplier to the UK – could expand its market share of little over 6 per cent at the expense of the three countries have a larger share of the British currently – China (25 per cent), Bangladesh (20 per cent), and Turkey (8 per cent).