UK FTA: Template for other trade pacts in mind, India moves cautiously

“We are negotiating, we are seeing how we gain in the negotiations… how our interests are protected while we gain from them in the negotiations… so that we don’t end up giving up more,” a senior government official told The Indian Express.

Apart from negotiations for the UK deal, India is in talks with the EU, the EFTA countries, Canada (for an early harvest deal) and with Australia to wrap up the early harvest deal into a full-scale trade pact by the end of this year.

Rules of origin — the criteria that determine the national source of a product — have been among the most contentious issues for the FTA talks with the UK. These are important in trade negotiations since countries levy duties or impose restrictions on products based on the source of imports. In addition, India’s  commerce and tax officials are negotiating on the crucial aspects of duty cuts for alcohol/whisky from the UK that could have an impact on the local bottling industry, the official said, adding that the pace of negotiations has been decidedly kept slow for this reason.

“Earlier, the FTA talks were slow because there was not much leadership stability in the UK. Now, the pace of negotiations has been slow due to many complex issues, and new kinds of commitments being made for the first time. Labour and environmental commitments are being taken for the first time and they have to be done in a manner which is not unfavourable to us. GVC (global value chains) which were not there in other FTA, we are negotiating… The UK is a template for other FTAs which will follow, especially with the EU, that’s why we are very cautious about our negotiations with the UK,” another official told The Indian Express.

Negotiations for comprehensive FTAs usually take 2-3 years to be completed, the official said. “If you look at how FTAs are done world over, comprehensive FTAs require time and they take 2-3 years. Early harvest (trade pacts) can be done in six months, but rest take time as both countries in a bilateral agreement have to protect their interests and maintain balance,” the official said.

“Rules of origin have undergone change because supply might be coming from somewhere else, one component is getting made at ten places, and then getting assembled at eleventh place. So, the negotiations have to ensure that the rules of origin are not made to be so strict that supply doesn’t come in,” the official said.

There is also another constraining factor: other countries being able to question preferential treatment extended to one country under the construct of the Most-Favoured-Nation (MFN). The MFN concept requires countries that are part of the World Trade Organisation to accord the most favourable tariff and regulatory treatment given to the products or services of any one member at the time of import or export of “like products” to all other members. This is a bedrock principle of the WTO and would also be a factor for New Delhi as it negotiates multiple negotiations at the same time. Others are well within their rights to seek a concession extended by a WTO signatory to another member nation/ bloc.

India and the UK are looking to close negotiations over five chapters dealing with contentious issues such as digital trade, environment and labour in the ongoing negotiations. Of the 26 chapters in the FTA negotiations between the two countries, discussions on 14 chapters have been closed, and negotiations are currently underway for other chapters. On June 9, India and the UK concluded the tenth round of talks. The 11th round – July 10-19 – is underway in the UK.

The commerce ministry had on Wednesday stated that the India-UK talks for the FTA have reached a “critical stage”. A Commerce and Industry Minister-led delegation was in London from July 10-12 for the talks.

In 2022-23, India-UK bilateral trade had increased 16 per cent to US $20.36 billion. India’s exports were $11.4 billion in 2022-23 compared with $10.5 billion the previous year; and its imports stood at US $8.96 billion during 2022-23 compared with US $7 billion in 2021-22.