What is a Free Trade Agreement?
A Free Trade Agreement (FTA) is a treaty lowering trade obstacles between two or more countries. Under a free trade policy, goods and services can be purchased and sold across international borders with minimal government taxes, quotas, subsidies, or restrictions to impede their interchange. Trade protectionism and economic isolationism are the antithesis of free trade. FTAs fall into one of three categories: Comprehensive Economic Partnership Agreement (CEPA), Comprehensive Economic Cooperation Agreement, or Preferential Trade Agreement.
History of India-UK Free Trade Agreement
India and the UK began official discussions for a Free Trade Agreement (FTA) in 2022. Both nations are considering creating a temporary free trade zone to lower tariffs on most goods. In addition to loosening regulations for specific services, both nations agreed on an early harvest programme or a restricted trade agreement to reduce tariffs on a limited number of items. They also decided to steer clear of “sensitive issues” and concentrate on areas with higher levels of complementarity. India views the dairy and agriculture industries as critical in trade negotiations. Additionally, a goal was established to double commerce between India and the UK by 2030.
Which issues under the negotiations are contentious?
- Intellectual Property Rights: India is committed to preserving its ability to produce life-saving generics and will not compromise on this front.
- Global Value Chains (GVC): To guarantee India’s interests, discussions are being conducted on the intricacies involved in global value chains.
- Digital commerce: India still needs to establish its domestic legislation, so it is unwilling to undertake digital commerce and data protection obligations.
- Rules of Origin (ROO): In the FTA negotiations, ROO—establishing a product’s national source—has been a divisive topic. Since governments set limits or levy tariffs on items based on the source of imports, these are significant in trade discussions. To prevent third nations from unfairly benefiting from the Free Trade Agreement, India seeks to impose stringent origin regulations.
- Labour and Environment: India benefits from these new labour and environmental obligations, which must be met without negatively impacting the country. India does not want any more requirements because it has made enormous progress. In contrast, the UK demands more restrictive intellectual property rights (IPRs), unrestricted cross-border data flow, regulations prohibiting data localisation, liberal ROOs, and labour and environmental responsibilities.
Significance of India-UK FTA
- Exporting Goods: Trade accords with the UK can improve textile, leather, and footwear exports, which create jobs. With 56 marine units recognised, India’s marine product exports are projected to skyrocket.
- Services trade clarity: The FTA will promote a more open, facilitative, and competitive services regime by providing certainty, predictability, and transparency. Service industries have tremendous export potential, including IT/ITES, nursing, education, healthcare, AYUSH, and audiovisual services.
- India withdrew from the Regional Comprehensive Economic Partnership deal (RCEP) in November 2019. Indian exporters want to diversify their sourcing. Thus, trade accords with the US, EU, and UK are being prioritised.
- Strategic Benefit: The UK is India’s strategic partner and permanent member of the UN Security Council. Strengthening commercial ties will seek UK assistance on global problems, including the Ladakh stalemate with China and the UNSC permanent seat demand.
