UK-India Free Trade Agreement
Debate between Liam Byrne and Iqbal Mohamed(3 weeks, 3 days ago)
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Liam Byrne (Birmingham Hodge Hill and Solihull North) (Lab)
I am grateful for the opportunity to speak in this debate. I want to start with huge thanks to my colleagues on the Business and Trade Committee for helping to inform the debate with a report that was agreed cross-party and that provided, if anything, a reasonably warm welcome for the Government’s work in securing this free trade agreement, but with a number of caveats, which I will touch on.
Before I set out the Committee’s evaluation of the agreement, it is worth marking this moment. The Minister, who is not known for underselling such moments in the House, actually could have sold this one rather more. Although we do not know quite when he will get the Gulf co-operation deal, which is no doubt imminent, over the line, or the Swiss deal—presumably it is not too far off—this could well be the year when he crowns a number of free trade agreements signed since we left the European Union. They could, in effect, create a triple ocean system of alliances that basically brings UK free trade agreements to about 46 countries in all, home to 2.5 billion people and blessed with something like 60% of world output. That is quite an achievement.
Pro-Europeans on the Government Benches will, of course, say that we can now look at the prize of what free trade agreements have brought compared with the losses entailed since we left the European Union. About £14 billion of GDP uplift is forecast as a result of the free trade agreements that we have signed. That is much less than the perhaps £140 billion hit to GDP that we have had since leaving the European Union. But I will not provoke you, Madam Deputy Speaker, by dwelling on that point for too long. None the less, this India free trade agreement is the keystone of that new architecture. It connects us to one of the world’s fastest growing economies and anchors us in the Indo-Pacific for decades to come. It is also worth saying that this is a significant moment for India, because this is not the only deal that India has signed, as the Minister said; it has also signed the EU deal, and it appears that there is a deal with the United States. India is on the cusp of the biggest transformation in its trade policy since independence. It is a country that has long been defined by its protectionism, but it now chooses to use its trade agreements as the anchors for ambitious domestic reform. If these agreements hold, as I hope they will, with the exception of agriculture, India is now moving from selective liberalisation to something approximating a near-open economy. That is a very significant moment in India’s long history, home as it is to about a sixth of humanity.
These trade deals are not the traditional kind of “Swiss cheese deals” with lots of carve-outs, delays and exemptions. India is now set to almost fully liberalise its manufacturing sector within seven to 10 years. That is a step change by any historical standard. For the first time, India has agreed deals that will be policed by powerful external partners, not just the Minister—a powerful interlocutor in any trade negotiation—but by the combined might of the European Commission.
For an Indian Government who have been protectionist by conviction for a long time, this represents an important reversal of deep nationalist instincts. As one of the world’s great homes of free trade, our nation should celebrate that. I hope that the Minister can use Delhi’s new-found philosophy in his conversations at the World Trade Organisation and elsewhere over the course of the year. Let us face it: we all need more allies for free trade in this world. If we are to build what the Finnish call “values-based multilateralism”, which is probably the best safeguard for peace in this world, India’s role in promoting free trade could be an important component. Another important dimension of that new posture relates to China. If India does indeed grow a low-cost manufacturing sector, the world will need to depend much less on China.
All in all, it is important that the UK has played its role in securing that agreement. The Committee’s report confirms that the agreement secures substantial tariff liberalisation in what is a highly protected market. As the Minister said, Indian tariffs are reduced or eliminated —by our reckoning—on 92% of UK exports by value, with around 64% of tariff lines liberalised on day one. The Government modelling, such as it is—always a bit speculative; always some interesting assumptions; always a bit long term; and always a bit difficult to pressure-test—suggests that the deal will add nearly £5 billion a year to UK GDP by 2040, and raises UK-India trade by £25.5 billion. Those are the numbers that the Minister rehearsed in his opening speech tonight.
The Committee’s analysis, however, presents more meaningful numbers for UK business. The £400 million-worth of tariff savings in year one is real revenue for UK businesses. That will flatter the bottom line, and, for businesses that are under pressure for reasons that we will set out in a report on Wednesday, it could provide much important cash flow. Those tariff savings could rise to about £3.2 billion over 10 years, as export volumes improve. There will be clear future gains for particular sectors. We think there could be a significant prize in the automotive industry, although there are implementation challenges, and clarity is required on how the quotas will work in practice.
As the Minister said, and as we heard from other hon. Members, spirits exporters will do extremely well from this new bargain. They will see reductions in the extremely high tariffs of today. As the Minister belaboured, UK firms will for the first time secure access to India’s central Government procurement market. That is a very large number. Whether our firms can genuinely compete for those new contracts is something that the Committee plans to study carefully.
When the deal was signed and first published, there was a lot of noise in the media about migration and mobility, and the Committee took a lot of evidence on that. We concluded that the agreement is not, in fact, a big migration deal, and nor does it materially change overall migration policy. As the Opposition spokesperson, the hon. Member for Arundel and South Downs (Andrew Griffith), pointed out well, it provides limited facilitation of mobility for skilled professionals linked to trade and services delivery. It could go much further in the future, but given where the Home Office positions itself on that policy at the moment, we accept that there will not be much progress in the near term.
The other real advances reflect years of negotiation and should not be dismissed, but the Committee wishes to underline that there are very significant risks attached to this agreement. India is not a frictionless market; tariffs were never the only barrier. The regulatory system in India is complex, decentralised and highly discretionary. Many of the barriers—be they licensing requirements or certification documentation—are at the state level, and the state-level variation, and state-level stubbornness in bringing those barriers down, will require an awful lot of work in India by His Majesty’s Government. That is why the successes of this agreement depend less on what is written in the treaty text, and far more on whether firms can operationalise it in day-to-day, week-to-week business.
I am glad that the Minister sought to take this bull by the horns in his opening remarks, because we are being asked to debate a treaty at a time when the Department for Business and Trade is seeking 40% reductions in export support staff. He went out of his way to stress that those headcount reductions would not be in India—I think that was the guarantee that he gave the House. That is important because those officials are responsible for helping firms to navigate the rules of origin, quota management, regulatory blockages and enforcement failures. They will also be required to staff a lot of the working groups that he and his counterpart will oversee. I worry that the reduction in export support staff in the United Kingdom will deny firms in Britain the knowledge and connections they might need to exploit the full possibilities of this new agreement.
Iqbal Mohamed
The UK is well regulated: we have auditing and verification, and there is a level of trust in the system for products, services, food, pharmaceuticals and agriculture. I am a big fan of India—my heritage is Indian, and my family is from India, so I am not here to criticise India unnecessarily—but the culture of compliance there is not on the same level or as embedded as it is in Europe and the UK. We would need more audits and external inspections to confirm that the products coming to our shores meet our standards, and for that the Government must invest more in resources, not reduce team sizes. Does the right hon. Member agree?
Liam Byrne
The hon. Member is exactly right. When the Committee published our report, we lamented that there was not a full-scale, full-blown implementation plan alongside the proposals. To a degree, those are difficult things to write, because it is difficult to forecast how quickly the treaty will go through the ratification process needed in India, for example, but we heard evidence that some markets—not least in automotives—had been chilled. Of course, if people know that there are huge tariff and price savings on the way, why would they not delay their purchase rather than make it today? We think that there could have been some wisdom in at least attempting an implementation plan, not least a resource plan that goes alongside the treaty—and perhaps even something tabled in time for tonight’s debate, to reassure the House that the Government will watch the implementation of this deal like a hawk.
The Select Committee has decided to go to India in March to understand how this deal will be implemented in real life. If our export support work is hollowed out, the consequences will be predictable: smaller exporters will walk away, utilisation rates for the treaty will remain low, and the headline gains will fail to reach the wider economy and benefit the constituents who sent us to this House to debate this treaty. I hope that the Minister will, as quickly as he can, rustle up an implementation plan to tell us how the agreement will be implemented. I very much hope that he will be able to align the ambitions for the treaty with the level of resource that he and his Department are investing in it.
The House will want to know that the Committee also tested the treaty against the deals secured by our allies in the European Union and the United States. Compared with the EU-India deal, it seems that the UK has moved faster and secured earlier liberalisation on some tariff lines. We have liberalised 92% of the value of our exports, while the EU has secured 96.6% of its exports, but both were for roughly the same level of market access offered to India—offers covering over 99% of India’s exports by value to the UK and EU markets.
The EU deal obviously covers a much wider volume of trade than we deliver with India, so the EU will therefore enjoy much bigger total tariff savings and a much bigger quota access, particularly for the automotive sector, among others. However, as the Opposition spokesman rightly flagged, there was limited progress on services—we flagged that, too. Services are the lifeblood of the British economy and of our exports—we are a services superpower. The EU’s negotiating position appears at first blush to be broader and deeper, but the final outcomes will remain unclear until the final text is published.
Compared with the United States, the contrast is different again. It appears that the White House has prioritised strategic leverage and tariff pressure over comprehensive liberalisation, extracting concessions through market power, not through traditional FTA approaches. The UK has chosen a different path: ruled-based, negotiated commitments and long-term engagement. I think that choice can work for us, as long as we are ruthless about ensuring good implementation.
We are sceptical about the level of services mobility that has been delivered, and about the absence of a bilateral investment treaty—we think that is a significant gap in our long-term framework. We also recognise that policy volatility and regulatory risk still matter. In particular, India’s record on investor protection remains uneven, and its tax administration is still too often used in a way that is, frankly, weaponised. Ensuring that we have good ways to monitor and escalate this will be important if the deal is to be a success.
As my hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell) flagged up, some UK sectors, like textiles and ceramics, will face increased competitive pressure, and although the agreement does contain binding human rights provisions, the responsibilities of UK firms do not end at the border. Being strong on human rights protection, upgrading the dysfunctional Trade Remedies Authority and pressuring the Competition and Markets Authority to publish a foreign subsidy control regime would be extremely welcome.
The final point I want to flag is an issue that came up during the Minister’s appearance in front of the Committee, and I have not heard enough tonight or since he came to the Committee about its progress. The reality is that India remains one of the biggest customers of Russian oil. That money is fuelling Putin’s war machine, and as recently as January, His Majesty’s Government had not introduced controls that were in place in the European Union to ensure that oil derivatives made from Russian oil were banned from this country. Indeed, when Politico reported on this earlier in the year, it noted that something like one in six units of Britain’s aviation fuel imports were derived from Russian oil. That is not something that the Minister will want to tolerate for very long. For a long time, he has been one of the leading voices in the House in standing up to Putin and the evil of Russia, so I hope during the wind-ups he will say more about exactly what he is doing, along with his colleagues, to ensure that we are stopping the possibilities of importing Russian oil derivatives from India.
In conclusion, our overall take is that this is a good deal that is in the UK national interest, but I do want to supply one final note of dissent. When the CRaG legislation was introduced to the House in 2010, it was always the intention of Parliament that when free trade deals came for debate, there would be a votable motion. That would allow Parliament to exercise the licence that it was promised to delay ratification if it was discontent with the terms of an agreement before us. I am grateful to the Leader of the House and the Minister for ensuring that there is a general debate tonight, but it is not a debate on a votable motion. If this Parliament is to be a strong watchdog and guardian of the Executive, it is important that what were once prerogative powers are transferred to us, here in this House. I hope that this is the last debate on a free trade agreement that takes place on a general motion; in a democracy, we decide things by voting.
Industrial Strategy
Debate between Liam Byrne and Iqbal Mohamed
Madam Deputy Speaker (Judith Cummins)
Final two questions and answers—very short, please.
Iqbal Mohamed (Dewsbury and Batley) (Ind)
I congratulate the Select Committee, the Chair and its members on the publication of the report. Which of the 10 tests ensure that business growth will be ethical, moral and responsible, and which of the tests protect the consumers, the public and the environment?
Liam Byrne
A very clear answer: leadership from the top—and that means coming from the Prime Minister directly.