Free Trade Agreement (FTA) denotes a pact signed between two or more nations with an aim to reduce barriers hindering the import and export of goods and services amongst them. Explicitly devoid of government tariffs, quotas, subsidies, or prohibitions, FTAs promote free trade rather than economic isolationism or trade protectionism. They can come in various forms such as Preferential Trade Agreement, Comprehensive Economic Cooperation Agreement, and Comprehensive Economic Partnership Agreement (CEPA).
The India-UK Free Trade Agreement Negotiations
Recently, formal negotiations on the Free Trade Agreement (FTA) commenced between India and the United Kingdom, aiming for a conclusion by the end of 2022. As an interim measure, both countries contemplate a free trade area to lower tariffs on most items.
Key aspects of this agreement involve an early harvest scheme or a limited trade agreement to mitigate tariffs on select goods and services. The focus remains on areas of complementarity while avoiding sensitive sectors like agriculture and dairy. Furthermore, a target is set to double the trade between these two countries by 2030.
India-UK Trade Relations: A Snapshot
The India-UK partnership rests on their shared history, democratic values, and cultural richness. The Indian diaspora’s dynamic presence in the UK further reinforces this relationship. Among the G20 countries, the UK stands as one of India’s most significant investors.
Why the India-UK FTA is Significant
This FTA could potentially enhance exports in sectors like textiles, leather goods, and footwear. A probable boost is also expected in Marine Products export due to recognition of various marine units in India. Mutual Recognition Agreements (MRAs) on Pharma are likely to provide added market access.
A concrete FTA ensures certainty, predictability, and transparency. It will foster a more liberal, competent, and facilitative service regime. Sectors like IT/ITES, Nursing, education, healthcare, including AYUSH, and audio-visual services might see a surge in exports.
The Strategic Advantage and Challenges
As a permanent UN Security Council member and one of India’s strategic partners, the UK’s strengthened ties could support India on global issues like territorial disputes with China and claims for a permanent UNSC seat. However, interim agreements might delay the attainment of comprehensive FTAs. They may also face WTO challenges if they do not cover “substantially all the trade” between the countries involved.
The Way Forward
India, being among the fastest-growing large economies, has majorly benefitted in terms of trade volume from its FTA with the UK. However, it is argued that these agreements have not provided the anticipated benefits and have negatively impacted the manufacturing sector due to lenient rules of origin. Hence, a detailed assessment by all stakeholders concerning goods, services, and investment flows is crucial moving forward.
