India-UK Free Trade Agreement (FTA) Negotiations

Source: The post  India-UK Free Trade Agreement (FTA) Negotiations has been created, based on the article “restart, restart, restart” published in “Business Standard” on 6th December 2024

UPSC Syllabus Topic: GS Paper 2 – International Relations

Context: This article discusses the protracted and ongoing negotiations between India and the United Kingdom (UK) for a free trade agreement (FTA), highlighting the challenges, stakes, and progress made since talks were launched in January 2022.

Why is the India-UK FTA significant for both nations?

1. For the UK: It is crucial to recalibrate post-Brexit trade relationships and strengthen ties with India, its second-largest source of foreign direct investment.
2. For India: The UK is its fourth-largest export destination and a key developed

How significant is UK-India trade currently?

1. The UK is India’s 14th-largest trade partner, with total trade of $11.5 billion during April-September 2023.
2. Exports from India: $7.3 billion (12% year-on-year growth)
3. Imports from the UK: $4.2 billion (30% year-on-year growth)

What are the contentious issues in the FTA negotiations?

India’s demands:

• Liberalized migration policies for skilled workers
• A Social Security Agreement (SSA) to prevent double contributions for cross-border workers

UK’s demands:

• Reduced tariffs on whisky (currently 150%), electric vehicles, and automobiles
• Greater access to Indian markets for legal, architecture, financial, and telecommunication services

Mutual disagreements:

• Labour and environmental commitments
• Carbon Border Tax relief for India
• Bilateral Investment Treaty (BIT) dispute resolution and local remedies clause
• Rules of origin and intellectual property rights

What are India and UK’s stances on labour and environment issues?

The Labour-led UK government may demand stronger commitments in these areas. India prefers non-binding “best endeavour” clauses, citing domestic regulatory constraints.

What are the challenges around the Carbon Border Tax?

India has strongly opposed the tax and seeks relief, but the new UK government may stick to its rollout plan, making negotiations tougher.

What sectors in India could benefit from the FTA?

Labour-intensive sectors like textiles, apparel, footwear, and agricultural products may gain market access. However, major tariff cuts are unlikely as the UK is already a low-tariff country.

What compromises might India need to consider?

India must be cautious about granting concessions on whisky and automobiles, as similar demands could arise from the EU and the US during their respective trade negotiations.

What’s the strategic importance of the FTA for the UK?

1. FTAs are vital for the UK to rebuild trade ties post-Brexit by reducing barriers, diversifying partners, and restoring market access lost after leaving the EU.
2. They also boost economic growth by opening new markets for exports and driving trade-led recovery in a sluggish economy.

How will the FTA affect India’s broader trade goals?

1. FTA provides an opportunity to expand into modern trade issues while maintaining a strong export position with a developed nation.
2. By resolving these disputes and aligning domestic priorities, both nations aim to shape a mutually beneficial FTA and bolster bilateral trade relations.