Negotiating Objectives for a Free Trade Agreement with India

Viscount Waverley Excerpts

Tuesday 6th September 2022 Grand Committee

[Viscount Waverley (CB)]

The relationship with India ranks alongside the most important. Free, independent and democratic, India is a powerhouse that will play a pivotal role in future world affairs and commands attention and respect. A potential United Kingdom-India free trade agreement would be the UK’s first with a south Asian country and India’s first with a major western economy and a member of the G7. India is the UK’s 15th-largest trading partner and accounts for 1.7% of total UK trade. The potential economic gains from this comprehensive agreement are projected to be more significant than those from trade agreements with Australia, New Zealand or Japan. However, the UK has lost market share, with every country in the G7 having faster growth in their trade with India in percentage terms. The UK needs to play catch-up, with a global Britain working hard and fast on its relationships.

There is much to be gained therefore in strengthening an historical, deep, across-the-board relationship, but we should recognise that this relationship should never be taken as a given. The previous UK Prime Minister’s visit to Delhi and Gujarat, recognising that half of British Indians are of Gujarati descent, was a helpful UK-India bilateral exercise that served to further opportunities across the energy and health sectors, the green economy, including offshore wind and hydrogen, and the important security and defence partnership, building on India’s desire to move on from Russian weaponry procurement. The need for effective new technology and hardware to respond to threats in the Indian Ocean as part of the Quad grouping alliance with the USA, Japan and Australia is geo-imperative. Our overdependency on China as a supply chain provider presents India with opportunities to be a reliable, competitive global alternative.

The UK should not be too starry-eyed. The Indians are canny and challenging negotiators, and the importance placed on trade agreements by India differs from our relentless, active pursuit of FTAs, contrasting with India’s scepticism. More remains to be done, however. India’s political class is questioning the merits of expanding trade links with the UK, with much of its thinking dating from the colonial era when unfettered imports from Britain had a negative effect on the domestic economy. India’s businesses are keen to safeguard their interests by advocating for a slower pace of trade and investment liberalisation, and I have little doubt that the Rajya Sabha, the Council of States, and the Lok Sabha, the House of the People, will wish to be assured that the interests of the differing regions of that vast country are properly covered before ratification.

Nevertheless, notwithstanding India having a record of pulling out of substantive negotiations, there are indicators of a fundamental change in approach. Delhi is unlikely, however, to acquiesce on reducing tariffs unless progress is made on mobility, a key demand that will allow skilled Indian workers into the UK. Tariff removals from India’s agricultural sector, for example, are crucial for protecting India’s ability to produce its own food supply and the employment of almost half the workforce. Significant additional challenges remain with divergences in the services, market access, digital, investment and dispute settlement mechanisms.

The UK might wish to consider the production of defence equipment in India and its exporting to third countries. I note the sailing from Kochi last week for sea trials of INS “Vikrant”, India’s first home-built aircraft carrier. India would welcome the British ship- building industry leveraging lower costs of manufacturing in Indian shipyards. Dual-use technologies are also considered important with cross-border data flows, data protection and cybersecurity as important areas that India and the UK could usefully collaborate on, in addition to energy security, including areas such as green hydrogen, beyond opportunities in manufacturing.

Advancing financial services is a key ask, from which the UK would benefit substantially in better access for our financial and legal services firms to the Indian market. The financial sector is emerging as a vibrant and dynamic area of growth in the Indian economy, but India ranks only 30th as an export destination for UK financial services. Figures suggest that Britain exported only about £3.8 billion of services to India, with financial services making up less than 10% of that total. Indian financial centres, unlike their Asian peers, are not sizeable in serving India’s economy. On the flipside, it is essential that the UK be competitive and offer attractive propositions to India, which would also serve to stem any general decline in our financial services sector.

Five rounds of negotiations have been concluded, with a whole raft of matters remaining. India is keen to tackle smuggling, counterfeiting and loss of tax revenue; improvising customs arrangements to reduce bureaucratic delays and red tape is considered crucial for small businesses. The UK Government have listed intellectual property as important within a trade deal that would enable low-cost vaccines to be produced by countries such as India.

Are concerns about toxic pesticides being allowed into the UK a potential stumbling block? Impacts on UK agriculture resulted from an increase in Indian wheat exports to the UK which contain chlorpyrifos, which was banned in 2019. International labour markets with low pay and exploitative conditions should be a factor. It is therefore considered important that an investor dispute settlement scheme be put into place to allow foreign investors to sue when profits are threatened.

A strategy to boost exports to India is needed. But if the UK is to be serious about trade, will the Prime Minister finally allocate a trade envoy to India—and not just one, by the by, but four, to accommodate India’s size and diversity? The detail must be got right. Deals of this size could typically take years to complete so it is questionable, given the challenges, whether the setting of an ambitious but arbitrary deadline for concluding the negotiations is the right approach. I am reminded of my grandfather’s remarks on the subject of local needs when assuming the governorship of Bengal at a challenging time in its history. Communities in both India and the United Kingdom should benefit from a draft that will stand the test of time and balances mutual advantage in addressing the wide diversity of India.