Top government officials from both India and the UK are making a final push to close pending issues in a bid to seal a free trade agreement (FTA) that has been in the works for the last two years, and where the widow is seen as closing really fast.
The model code of conduct (MCC), likely to be implemented next month, is being viewed as a final cutoff date, with hectic last-minute parleys being escalated to the highest level in the Indian government across ministries including commerce, department of economic affairs and ministry of external affairs to thrash out a final consensus, a government official said.
The FTA with the UK would be the first full fledged deal with a western country that would see deeper economic integration with a major global service sector leader. However, the window to sign the deal is fast closing with elections in both the countries this year. While the general election in the UK is expected in December this year, India’s general elections are likely to take place between April and May this year.
The UK FTA is crucial as it will serve as a template for trade deals with larger western trade partners such as the European Union and European Free Trade Association (EFTA). Economic integration with the western countries through FTA assumes significance as the global supply chain is undergoing a reset after covid-19 and multinational companies globally are adopting a China plus one policy. Multilateral trade agreements such as the Indo-Pacific Economic Framework for Prosperity (IPEF) are also being negotiated in a bid to shift away from dependence on China.
For us (India) MCC is the cutoff. Our UK counterpart understands this and that is the reason their officials are here and meetings are ongoing with the highest level of the government across ministries including commerce ministry, department of economic affairs and ministry of external affairs,’ the official said.
A delegation from the UK arrived in India on January 22.
‘All chapters are closed but a handful of articles in a few chapters are remaining. It is a small basket now. Over 90 per cent of the deal has been closed. There have been several issues and chapters closed in the last three months,’ the official added.
The MCC is a code containing general precepts for model behaviour during elections conducted by Election Commission (EC). It has an entire chapter on what the party in power can and cannot do once elections are announced which forbids use of official machinery and personnel for the political gains of the party in power.
Hence, the spirit of MCC also requires the bureaucracy or any public servant to not engage or appear to engage in an activity that could work to the advantage of the party in power. Notably, the MCC is only a moral code and lacks any statutory backing, the EC, at best, can censure, advise or pull up the person found violating it.
With the date for MCC fast approaching, India is looking to close two other FTAs including the India-Oman Comprehensive Economic Partnership Agreement, the European Free Trade Association with the four nation bloc of Iceland, Liechtenstein, Norway, and Switzerland.
However, the comprehensive trade deal with Australia is likely to be taken up after the general elections as Australian negotiators are seeking access into India’s agricultural market, which is a sensitive sector for India.
While the UK has asked India to reduce duty on cars and whisky among other items, India has sought better access for its service sector workforce in the UK. The final deal could see India lower duty to a greater extent as India is a high tariff country. The average tariff on goods imported from India into the UK is 4.2% but the average tariff in India on goods imported from the UK is 14.6%
Negotiations on cars and whisky have been contentious as Indian industry has been seeking greater access into the UK market too. Indian whisky manufacturers have said that the UK should ease its three year maturation rule, which acts as a barrier for Indian whisky brands seeking entry into the UK, and is seeking duty concessions in the auto sector, particularly in the EV segment.
India’s labour-intensive sectors are expected to see gains from the India-UK FTA, especially the textile sector. Indian textile exports face tariffs as high as 10% in the UK and a trade deal could put India on par with competition such as Bangladesh (which get LDC benefits), and revive textile exports. Meanwhile a greater integration in the services sector with the UK could help greater job creation in the fast growing industry.
India and the UK are also looking to sign a bilateral investment treaty (BIT) alongside the FTA that could improve UK’s investments into India. To resolve investor-state disputes under the new BIT faster, India is expected to move away from its 2016 model BIT approach that stressed on exhaustion of local remedies.
In FY2023, India’s merchandise exports to the UK were valued at $11.41 billion while imports stood at $8.96 billion.