India and UK Free Trade Agreement

Context:

The India-U.K. Free Trade Agreement (FTA) may not be ready in time for its October-end deadline indicated both New Delhi and London, as India reacted sharply to British Home Secretary’s statement linking the FTA with migration issues and the U.K. government said “quality”, not “speed” would determine the FTA’s launch.

Relevance:

GS II- International Relations

Dimensions of the Article:

1. What are Free Trade Agreements (FTAs)?
2. Benefits of India-UK FTA
3. Areas of cooperation between India and UK:
4. Issues in India-UK relations

What are Free Trade Agreements (FTAs)?

Free Trade Agreements (FTAs) are the arrangements between two or more trading alliances that primarily agree to lessen or dispose of customs tariff and non-tariff barriers on substantial trade between them.

Key features of Free Trade Agreements (FTAs) are as follows:

• The member nations of FTAs explicitly identify the duties and tariffs that are to be imposed on member countries when it comes to imports and exports.
• FTAs typically cover trades in
  • merchandise — such as agricultural or industrial products
  • services — such as banking, construction, trading and so forth
  • intellectual property rights (IPRs)
  • investment
  • government procurement
  • competition policy and so on.
• FTAs additionally, for the most part, provide criterion called the ‘Rules of Origin (RoO)’, required for the determination of product’s country of origin for the imposition of the preferential tariff on International trade.   Note: Rules of Origin (RoO) are enforced with the issuance of a Certificate of Origin (CoO) by authorized agencies of the trading partner.
• FTAs act as an exception to the Most Favoured Nation principle adopted by WTO (World Trade Organization).

Benefits of India-UK FTA:

• The FTA negotiations with the UK is expected to increase our exports in Leather, Textile, Jewellery and processed Agri products.
• It also expected to register a quantum jump in the export of Marine Products through the recognition of 56 marine units of India.
• The Mutual Recognition Agreements (MRAs) on Pharma could provide additional market access.
• There is also great potential for increasing exports in service sectors like IT/ITES, Nursing, education, healthcare, including AYUSH and audio-visual services.
• Observing that UK was a major trade partner of India with substantial bilateral volume of trade in goods and services, the cooperation extended across areas like tourism, tech, startups, education, climate change, etc.
• The two nations were looking forward to a mutually beneficial trade deal with balanced concessions and market access package in a wide range of sectors.
• It will also contribute in integrating value chains and help augment our mutual efforts to strengthen the resilience of supply chains.

Areas of cooperation between India and UK:

• Institutionalised dialogues: India and UK have a number of bilateral dialogue mechanisms in place, covering a wide spectrum of areas including political, trade, education, science & technology, defence etc.
• Trade: UK is among India’s major trading partners and during the year 2014-15, UK ranked 18th in the list of India’s top 25 trading partners. India’s main exports to the UK are garments and textiles, machinery and instruments, petroleum products, footwear and leather.
• Services: As per UK’s Office for National Statistics, India-UK bilateral trade in services in the year 2014 amounted to approx. £2.5 billion.
• Investment: UK is the 3rd largest inward investor in India, after Mauritius, and Singapore with a cumulative equity investment of US $22.56 billion.
• Economic Dialogue: Bilateral mechanisms like India-UK Economic & Financial Dialogue (EFD) and India-UK Joint Economic and Trade Committee (JETCO) form the basis of institutional engagements between the two countries.
• Education: Education is an important plank of the India-UK bilateral relationship. Over the last 10 years, the relationship has grown substantially with the introduction of bilateral mechanisms such as the India-UK Education Forum UK-India Education and Research Initiative (UKIERI).
• Indian Students: UK has traditionally been a favourite destination for international students. At present, there are approximately 20,000 Indian students pursuing Undergraduate and Postgraduate courses in the UK.
• Cultural Linkages: Cultural linkages between India and UK are deep and extensive, arising out of shared history between the two countries. There has been a gradual mainstreaming of Indian culture and absorption of Indian cuisine, cinema, languages, religion, philosophy, performing arts, etc.
• Indian Diaspora: The India Diaspora in UK is one of the largest ethnic minority communities in the country, with the 2011 census recording approximately 1.5 million people of Indian origin in the UK equating to almost 1.8 percent of the population and contributing 6% of the country’s GDP.
• Geopolitical Significance – The Indian Ocean is identified as a vital arena for closer defence and security cooperation between the two countries. Further, India needs UK’s support on international fora for its aim to have a permanent seat in UNSC and full membership of NSG.

Issues in India-UK relations

• The UK does not have a government-to-government framework for arms sales to India, relying instead on commercial-led transactions.
• UK is an active participant in Belt and Road Initiative of China for which India raised sovereignty issues.
• Colonial hangover in public is affecting the policy makers of India to take decisions for close relations with UK.
• Brexit raises major issues for Indian business:
  • Political uncertainty and oscillating business policy along with fluctuating market share and prospect.
  • Restructuring to set up EU subsidiaries of Indian companies.

Source: The Hindu