Negotiating Objectives for a Free Trade Agreement with India

Viscount Younger of Leckie Excerpts

Tuesday 6th September 2022 Grand Committee

[Viscount Younger of Leckie (Con)]

My Lords, whether I am temporary, permanent or in no role at all, I am very pleased to respond to this debate this afternoon. I thank the noble Baroness, Lady Hayter, for tabling today’s Motion and congratulate her and the International Agreements Committee on their report on the free trade agreement we are negotiating with India. As ever, it is a comprehensive report and the Department for International Trade is thoroughly considering its recommendations.

We have heard many insightful and helpful speeches today from Peers with much experience in this sector, including trade itself. As the Committee will know, we are currently in live negotiations. I will endeavour to respond to as many points from noble Lords as I can, but there is a lot to cover. I reassure the noble Lord, Lord Purvis—I was going to raise this before he did—that I will ensure that our negotiators are made fully aware of all the points raised today, although I doubt that I will be able to cover everything. My noble friend Lord Caithness stated that this debate cannot possibly cover all the points of the deal in depth. He is right, but it is part of a multifaceted process; I argue that this debate is a big deal but not perhaps such a big deal in terms of the whole process, which I will speak about later.

I am the first to say that this negotiation is a considerable challenge. India’s economy is vastly different from those of countries with which we have previously agreed free trade agreements. I recognise that it has historically taken a protectionist stance towards trade and agreed so-called thin free trade agreements with several countries. I note the realism in this respect expressed by the noble Viscount, Lord Waverley. However, I am also realistic. Every negotiation is different, and our ties with India are already strong. In this case, from the very top down, both countries have made it clear that we want to reach a thick deal—a comprehensive free trade agreement. Negotiations are gathering momentum as we work towards our shared target to conclude the majority of talks by the end of October. I know there are a number of questions on this, and I will come back to the timings and deadlines later in my remarks.

I believe that the prize that awaits us is great. My noble friend Lord Frost reminds us that we start from the position of being outside the EU and negotiating under our own steam. In 2021, India was the world’s sixth-largest economy. By the middle of the century, it is on course to become the third largest, so a free trade agreement will take the UK to the heart of the economic powerhouse of tomorrow. My noble friend Lord Hannan gave us a brief history lesson on trade with India, emphasising the need to address the tariff barriers, and of course he is right.

Last year, UK businesses exported more than £8 billion-worth of goods and services to India. As its middle class grows towards a quarter of a billion people, demand for the best of British is surely set to soar. That is why, through our negotiations, anything that we can do to make trading with India easier could be game-changing for UK businesses. To reassure the noble Baroness, Lady Hayter, it is to benefit UK businesses, not just businesses or consumers in India—an important point.

Today, some of our most iconic exports, such as Scotch whisky and Midlands cars, face import duties of up to 150%, which was raised in the debate, and our businesses are held back by restrictive rules and regulations. We are therefore looking to remove or reduce a range of tariffs and cut through as much red tape as we possibly can. This will make UK exports more price competitive in the Indian market, potentially giving our businesses a first-mover advantage over their global competitors.

The noble Earl, Lord Sandwich, asked about our objectives, and my noble friend Lord Lansley asked what would constitute success in negotiating an FTA. Those are both fair points and, although I cannot wholly answer them precisely, I will start by saying that the Department for International Trade’s modelling suggests that, by 2035, a comprehensive FTA could boost UK GDP by more than £3 billion. Of course, the exact benefits will depend on the final deal we achieve, but we remain confident of securing a deal that compares favourably to anything India has previously agreed. In any case, the Department for International Trade will carry out an impact assessment to build on the scoping assessment that has already taken place.

Several noble Lords, including the noble Baroness, Lady Hayter, my noble friend Lord Lansley and the noble Lord, Lord McNicol, asked about priority areas. They will know that the Government do not publish detailed policy positions, as that would disadvantage the UK in the negotiations. However, I can reiterate that our extensive stakeholder work, in both our consultation to set our mandate as well as our continued engagement with business in talks, is important.

A free trade agreement will be immensely valuable to the UK and to India, but I emphasise that it is just the next chapter in our long-standing trading relationship. Just as my ancestors exported beer brewed in Alloa in Scotland to India in the 19th century, today, thousands of British businesses exchange goods, services and ideas with India. Last year, our trading relationship was worth over £24 billion and, separate from this FTA, the UK and India share a road map to double our trade by 2030.

However, our relationship with India is defined by more than just numbers. As Prime Minister Modi has so often reminded us, a living bridge connects our nations—the world’s largest and the world’s oldest democracy. More than one and a half million people of Indian origin live in the UK. They make a profound contribution to our society, culture and economy. This living bridge has been built by partnerships—my noble friend Lord Lansley emphasised that point. One of the vaccines that protected billions of people around the world from Covid-19 was developed through a partnership between Britain’s AstraZeneca and India’s Serum Institute. Jaguar Land Rover is Indian-owned but British-made and employs almost 30,000 people in the UK. There are so many more examples of this collaboration across our economies. It delivers jobs and prosperity and enriches our society, and through a free trade agreement we can make it cheaper, easier and quicker for goods and services to cross this living bridge and drive growth.

I will touch on services and mobility, which was raised, not least by the noble Lord, Lord Purvis. As the Committee rightly recognised, services are also vital to our trading relationship. Prior to the coronavirus crisis, between 2009 and 2019, UK services exports to India doubled. Through our negotiations, we are also looking to open doors in sectors where our businesses are currently hindered from operating in India, such as professional, business and financial services. Along with our efforts to liberalise trade in goods, this means that, by 2035, a comprehensive deal could increase UK exports of services by billions of pounds, generating higher wages, supporting thousands of jobs and growing the economy.

The committee’s report rightly outlines that improving mobility for businesspeople will be key to delivering these benefits, again points that were raised this afternoon. That is why I want to assure the Committee and the noble Earl, Lord Sandwich, who raised this, that we are exploring mobility provisions that benefit UK businesses and consumers, but will not agree anything which undermines the UK’s points-based immigration system or our ability to control immigration.

Moving on to investment, the committee also raised the importance for UK businesses of opening India’s markets to investment. As outlined in our published objectives, we want to make sure that investment is protected and that investors are treated fairly. The UK and India have a common interest in seeing our investment relationship grow and providing businesses with confidence.

Let me say a little more about this because it was raised by the noble Baronesses, Lady Bennett and Lady Hayter, and my noble friends Lord Lansley and Lord Caithness. The Committee will know that India terminated our existing bilateral agreement for investment in 2017, so we want to agree new investment commitments that will form the backbone of the UK-India relationship for years to come but, in line with our public objective, we aim to make it easier for UK firms to invest in India by providing them with legal certainty and the confidence to operate in Indian markets. We will seek to provide sufficient protections to UK investors and guarantee that they receive fair and non-discriminatory treatment, ensuring their access to adequate remedies if those obligations are breached. The inclusion of ISDS is considered where it is in the UK’s interest and where we agree with partners that it can play a useful role in supporting the bilateral investment relationship.

I shall now address points raised by several noble Lords about deadlines, timescales and progress. I have fully taken note of all the comments made. The UK and India are different economies and there is no one-size-fits-all approach to negotiating trade agreements. When negotiations launched in January, both sides came to the table with high ambition and strong political backing—perhaps no surprise there. As far back as April 2020, Prime Ministers Modi and Johnson wholeheartedly committed to negotiating a comprehensive free trade agreement. Our negotiating objectives were based on input from hundreds of stakeholders, and we are pushing firmly and consistently to achieve results that matter to UK businesses and consumers. But for any negotiation to succeed, the outcome needs to work for both parties and, through the five completed rounds of negotiations, we have worked with our Indian friends to make progress towards a realistic agreement that benefits us both, including on a number of new and innovative chapters.

The target set by Prime Ministers Modi and Johnson to conclude the majority of talks by the end of October is a clear demonstration of continued political will to reach an agreement. It has focused minds and driven progress. With his great experience in this area, my noble friend Lord Frost, backed by my noble friend Lord Hannan, made the important point that having deadlines is helpful and important in such a process. Both nations are working hard to keep up this pace and beginning to see a potential deal that will benefit our trade relationship but, as we have made clear since the start of talks—I say this to reassure the noble Baroness, Lady Hayter, and other noble Lords—the Government will not sacrifice quality for speed. We will sign only deals that are in the UK’s best interest, whether they are with India or any other partner, so if it takes longer, it takes longer.

The noble Lord, Lord Kerr of Kinlochard, raised concerns about communications and keeping shareholders informed, so I shall move on to the related point about scrutiny and engagement. The report highlights the importance of engagement throughout the process, and I wholeheartedly agree with that objective. From the outset, this Government have engaged with UK businesses and consumers on this deal. Talks commenced only following an extensive consultation with stakeholders, as mentioned earlier, which directly shaped our objectives. We continue to connect regularly with hundreds of businesses, business representative organisations and civil society groups through our strategic advisory and trade advisory groups.

As with all our trade policy, Parliament has significant opportunities to scrutinise our deal with India. The noble Baroness, Lady Hayter, is right that it is the content of the deal that counts. I wholeheartedly agree with her on that. Ministers engage with the International Agreements Committee and the International Trade Committee throughout the life of a free trade agreement. Indeed, our chief negotiator has offered private briefings prior to signature, whenever that might be, at the committee’s leisure, which I hope this committee and the International Trade Committee will take up.

After signature, an economic impact assessment and full treaty text will be publicly available. The Trade and Agriculture Commission will then produce a report on the agreement and the scrutiny process under CRaG, which the Committee will be familiar with, will be carried out prior to ratification. In addition, any primary or secondary legislation will need to progress through Parliament in the usual way. This will take place in parallel to India’s ratification process.

Let me add a little more on the question asked by my noble friend Lord Lansley. He made the point that the Indian Secretary of Commerce made some comments on the timings in the chapters closed. I reiterate our public commitment to our shared target to conclude the majority of talks by the end of October this year. We have made good progress but we still have to work through some challenging and important areas to achieve a comprehensive FTA that respects both sides. However, I remain clear that we will sign a deal only when it is in the UK’s best interests. Given all the points raised, I hope that I have been clear about this matter this afternoon.

Moving on to standards and so-called red lines, which were raised by a number of noble Lords—my noble friend Lady McIntosh in particular—I am aware of concerns that the UK’s world-leading standards could be diminished by any new trade deal. To be clear, as in any FTA, the Government are committed to upholding high environmental, product and labour standards. We will not agree to provisions that will undermine or reduce the safety standards of products imported into the UK, including pesticides. In fact, we have already provisionally closed a stand-alone chapter on sanitary and phytosanitary standards. This will ensure that traded food is safe to consume and that animal and plant products are free from pests and disease. The noble Baroness, Lady Bennett, raised this point.

To add a little more to what I have said, our provisionally agreed chapter on sanitary and phytosanitary standards builds on our long-standing relationship and ensures that both parties can continue to protect their biosecurity, including through enhanced structures and streamlined processes. This includes provisions on antimicrobial resistance. Nothing in the provisionally closed SPS chapter changes our high food standards or strict requirements on imports from India. I say again that the UK is committed to maintaining our current high standards and will not agree to provisions that undermine the safety standards of products imported into the UK.

In addition, the Government share the public’s respect for worker protections and gender-based rights. We have already provisionally agreed a stand-alone trade and gender equality chapter with India—this was raised by noble Lords; I will say a bit more about it later—as well as a chapter on trade and development co-operation. However, we recognise that not all challenges can be solved by trade deals alone, which is why we are working across government on engaging our Indian friends to make progress across these areas. As always, the UK will continue to ensure that public services, including the NHS, are protected in all trade agreements.

Moving on, I understand that there are continuing concerns—they are usually raised in these debates—about dispute mechanisms, notably raised by the noble Baroness, Lady Hayter. These mechanisms play an important part in increasing businesses’ and stakeholders’ confidence that our international partners will uphold their obligations in such areas in FTAs. What is more, they are important deterrents; if an effective mechanism for enforcing commitments under FTAs is in place, it is more likely that our international partners will uphold their commitments.

I will say a few words about corruption, which, again, was a theme raised by the noble Baroness, Lady Hayter, and my noble friend Lord Udny-Lister. I understand that there are important concerns on this subject regarding this particular deal. Throughout our negotiations with India, the UK has made a strong case for a comprehensive anti-corruption chapter. I am pleased to say that our efforts have been successful and we have provisionally agreed one. It will be India’s first stand-alone anti-corruption chapter in a bilateral FTA and the provisional agreement goes further than the precedent set in previous FTAs. This speaks to India’s interests and intent. Although the chapter will not change India’s domestic legislation, it affirms its international commitments.

More broadly, all British businesses operating in India are bound by the UK’s Bribery Act and no FTA will change this. This matter was raised by my noble friend Lord Balfe in his comments on facilitation payments, and we know what is meant by that. Both nations are keen to combat the trade-distorting impact of bribery and corruption, as well as to provide important reassurance to British businesses.

I think I have time to cover a number of other questions that were raised. A number of Peers raised the important matter of Ukraine, and I absolutely take note of their comments and reiterate that the UK is working with international partners, including India, to co-ordinate the international response to Russia’s unlawful—and outrageous, I would say—invasion of Ukraine. Prime Minister Johnson visited India in April, where he discussed this issue directly with Prime Minister Modi and released a joint statement unequivocally condemning civilian deaths and calling for a peaceful resolution to the conflict. I should note that, historically, trade deals have not been a way to secure broad diplomatic agreements. However, I add that, as always, any decisions to agree to a trade deal will be taken at the appropriate time when talks conclude.

Innovation was raised, not least by my noble friends Lord Lansley and Lord Udny- Lister. I will say a few words on that important point as part of this FTA negotiation. The provisional agreement on innovation goes beyond the precedent set in India’s previous FTA negotiations. The UK and India, as I said earlier, share a highly productive relationship, collaborating on research and development for innovation. This will play an essential role not only for economic growth but in tackling global challenges, levelling up, building back better from the pandemic and climate change, which I hope I will have time to cover as well.

The important matter of labour rights and trade and gender equality was raised by my noble friend Lord Udny-Lister, with a focus on women. Let me say a little about that important point. The UK and India have provisionally agreed a chapter on trade and gender equality, which is the first of its kind for India and will enhance opportunities for women to access the full benefits of trade between the UK and India. This reflects our shared commitment to advancing gender equality and women’s economic empowerment, recognising that women often face disproportionate barriers across the economy and in trade. There is more work to be done on this, but I reassure noble Lords that it is very much a priority as part of this negotiation.

On labour rights, raised by the noble and right reverend Lord, Lord Harries, the noble Lord, Lord McNicol, and my noble friend Lord Balfe, both parties reaffirm their respective commitment to international labour standards while providing assurances that they will not fail to enforce domestic labour protections in order to gain a trade advantage—an important point to make. Also, any agreement must protect our regulatory sovereignty; a non-regression clause would constrain this. The provisions we seek on labour protections provide assurances for workers and businesses without undermining our security.

The noble Earl, Lord Sandwich, spoke about the important matter of intellectual property in respect of medications, or perhaps medicines. It could be both; generic versus brand, if I can put it that way. Briefly, it is an important point about a huge sector, particularly the pharmaceutical sector, for us in the UK. Our approach considers industry, which relies on the period of exclusivity provided by patent protection, while ensuring that the system facilitates the entry of generic medicines on patent expiry. While we cannot speak to specifics in the negotiation room, as I alluded to earlier, the UK remains committed to the Doha declaration on the TRIPS agreement and public health.

On the important subject of climate change, particularly in relation to this agreement, I will make some brief comments. We have been consistently clear that we will uphold our high environmental protections in our FTA, and this applies to this particular deal. We are seeking a range of provisions that support the Government’s ambition on climate change. I think I will write a letter to give more on this, but in terms of the point on decarbonisation raised by the noble Lord, Lord McNicol—I am sure that the noble Baroness, Lady Bennett, will have raised it—it also includes facilitating trade in low-carbon goods and services and strengthening co-operation to achieve environment and climate change objectives, including decarbonisation.

The noble Lord, Lord McNicol, raised a very important point about the DAs. I will cover them in my letter, but I reassure him that, whatever he may have heard, the opposite is true. The relationship with the DAs is very good. We are in constant contact with them. I would like to speak to him, perhaps outside the Room, as to where he got his information from, but I think a letter is in order to reassure him.

I will conclude, as there are other things going on which I think we are aware of. I thank the noble Baroness, Lady Hayter. As always, the International Agreements Committee’s report has provided the Government with welcome insight. We really are listening and plan to respond in detail later this month. I reiterate my thanks to the committee.

We appreciate that the final stages of the negotiations will be challenging, but I say again that we are making progress. As India’s middle class continues to grow towards a quarter of a billion people, its spending power will increase and increase. A free trade agreement will put British businesses at the front of the queue to satisfy this demand for decades to come. This is the prize. We must grasp it and be sure that we do not lower standards at the same time.