Scotch, cars, and pharmaceuticals key points in the India-U.K. trade pact

Hyderabad: Negotiations between India and the U.K. for the Free Trade Agreement (FTA) have reached a pivotal juncture. As of January 10, 2024, the 14th and final round of discussions is underway, aiming to shape an extensive trade agreement that spans investment, goods, and services. Let's delve into the current status, challenges, and significant developments surrounding these critical discussions with the help of Sujit Nair. Sujit Nair is a prominent figure in international trade negotiations FRSA, Founder Chairman of the Europe India Centre for Business and Industry (EICBI). Sujit takes us through these final talks in a free-wheeling interview with Bizz Buzz.

1. Can you provide details on the current status of the free trade agreement (FTA) negotiations between India and the U.K., particularly focusing on the chapters that have been finalized and those still under negotiation?

On January 10, 2024, the 14th and final round of negotiations for the India-UK Free Trade Agreement (FTA) began. To finalize the terms of this extensive trade agreement, both countries are navigating a convoluted web of discussions. The goal of the discussions is to promote increased trade in products, services, and investments between India and the UK. Below is a thorough summary of the present situation and the main points being negotiated:

The completed Chapters include investment, Goods, and Services: Issues relating to investment, goods, and services have all been satisfactorily resolved during the negotiations. India and the UK have reaffirmed their shared commitment to a comprehensive and ambitious Free Trade Agreement.

Following are the negotiations in progress:

1. Corporate Travel: Provisions about the movement of professionals and businesspeople between the two countries are being discussed about business mobility.

2. Whisky from Scotland: Concerning Scotch whisky, discussions are taking place regarding tariffs, market access, and laws about its import and sale in India.

3. Vehicles: Negotiations about standards, tariffs, and laws governing the import and export of automobiles between India and the UK centre on the automotive industry.

4. Agricultural Goods: Talks about tariffs, quotas, and trade barriers in the agricultural sector centred on agricultural goods.

5. Drugs: The pharmaceutical industry is negotiating on matters like market access, intellectual property rights, and import and export regulations.

The FTA negotiations do not include Ayurvedic products and market access for these goods will be discussed separately.

2. How significant is the progress made in the 14th round of negotiations between India and the U.K.? Are there specific challenges or differences being addressed at both the higher and team levels?

While there are no significant updates on the 14th round of negotiations, both countries are eager for further economic cooperation and India is anticipating a comprehensive and ambitious Free Trade Agreement. The concluding talks that began on the 10th of January focus on business mobility, Scotch whiskey, automobiles, farm products, pharmaceuticals, and rules of origin, alongside a separate agreement to enhance bilateral investments. This is a difficult task, as the respective industries are integral to the UK's economy and bring several technical challenges, additionally, the upcoming elections have created political sensitivities in this process and India is eager to wrap up negotiations before commencing their general elections in April 2024. The pace is notable as the 13th round of negotiations which concluded in December were speculated and hoped to be the final and closing talks. Recently, India also surpassed France as the largest buyer of Scotch whiskey. The Scotch Whiskey Association states that 219 million bottles were exported to India in 2022 despite the imposition of a 150% import duty on each bottle keeping in mind domestic distillers. This is a complication for the UK as it wants these tariffs to be reduced to at least 75% and ideally even 30%, Moreover, the current British government demands a maturity age of 3 years for the spirit to be classified as whiskey which again proves to be a bone of contention for domestic products. So, the main hurdles in the FTA currently are namely scotch, apparel, immigration or increased professional visas, IPR, medicines and services.

3. What are the key points of discussion in the proposed Bilateral Investment Treaty (BIT) between India and the U.K.? How is the progress in this area contributing to the overall agreement?

Bilateral Investment Treaties (BITs) are agreements between two countries, protecting investments and regulating the host state's behaviour. These treaties limit interference with foreign investors' rights, imposing conditions like fair treatment, non-expropriation without compensation, and enabling investors to seek damages through arbitration if regulatory measures breach the BIT.

Key Points of Discussion in (BIT) between India and the U.K:

A separate agreement for investment: The BIT is being negotiated as a separate agreement between India and the U.K., distinct from the broader Free Trade Agreement (FTA).

Closed chapters in FTA negotiations: Out of the total 26 chapters in the proposed FTA, 19 have been closed, indicating substantial progress in various areas. However, the details of closed chapters have not been explicitly mentioned.

Indian industry demands: India is pushing for greater access for its skilled professionals, especially from sectors like IT and healthcare, in the U.K. market. This indicates a focus on facilitating the movement of skilled labour across borders.

Market access for goods: The Indian industry is advocating for market access for several goods at nil customs duties, emphasizing the desire for favourable trade conditions for Indian exports.

U.K. import duty reductions: The U.K. is seeking significant reductions in import duties on specific goods, including scotch whiskey, automobiles, lamb meat, and certain confectionary items. This reflects the U.K.'s interest in expanding its exports to India.

Opportunities for UK services in India: The U.K. is looking for more opportunities in the Indian market, particularly in segments such as telecommunications, legal, and financial services like banking. This suggests a focus on enhancing the cross-border provision of services.

Bilateral trade growth: The bilateral trade between India and the U.K. increased to USD 20.36 billion in 2022-23 from USD 17.5 billion in 2021-22. This growth in trade volume underscores the economic importance of the negotiations and the potential benefits of a comprehensive agreement.

The progress in the Bilateral Investment Treaty (BIT) is vital for the overall India-U.K. agreement. Discussions on skilled professionals, market access, and import duty reductions align with broader goals of economic cooperation. The separate BIT negotiation emphasizes creating a favourable investment environment, crucial for long-term economic ties. Mutual interests and concessions in goods, services, and investment highlight a comprehensive approach, addressing diverse economic aspects in the bilateral relationship.

Way Forward: India's decision to adopt a new model BIT reflects a recognition of the need to balance investment protection with the host state's regulatory rights. This shift stems from past disputes where broad investment protection standards prioritised investors over regulatory sovereignty. While India maintains engagement with the Investor-State Dispute Settlement (ISDS) system, the new model BIT indicates a pro-state stance with limited rights for foreign investors.

However, its impact on the UK-India FTA may be significant, as India seeks to attract foreign investment under initiatives like "Make in India" while also safeguarding the regulatory space. The evolving BIT practice is crucial for India, considering its dual role as both an importer and exporter of capital, impacting Indian companies' protection abroad. Notably, recent instances of Indian investors successfully suing under BITs underscore the importance of balancing these agreements for the overall success of international economic partnerships, such as the ongoing negotiations between the UK and India.

4. Can you elaborate on the 26 chapters covered in the India-U.K. free trade agreement, specifically highlighting the areas of goods, services, investments, and intellectual property rights? What issues remain unresolved in goods and services?

While the India-U.K. FTA is still under negotiation, its proposed 26 chapters cover a wide range of areas. Here's a breakdown of the key aspects:

1. Goods: Tariff reduction: Both sides seek to reduce or eliminate tariffs on various goods, potentially boosting trade in agricultural products, manufactured goods, and pharmaceuticals.

Non-tariff barriers: Negotiations aim to ease regulations and technical standards to simplify the flow of goods.

Rules of origin: Determining which goods qualify for preferential treatment within the FTA is important to prevent circumvention.

2. Services: Market access: India wants greater access for its professionals in sectors like IT, healthcare, and education in the UK market.

Mode of supply: Facilitation of cross-border trade in services through various modes like movement of professionals, remote provisioning, and commercial presence.

Domestic regulations: Streamlining of regulations to promote greater competition and efficiency in service sectors.

3. Investments: Protection and promotion: Ensuring fair and equitable treatment for investors from both countries.

Dispute settlement: Establishing mechanisms for resolving investment disputes between investors and host governments.

Negative list approach: Specifying sectors where investments are restricted or prohibited.

4. Intellectual Property Rights (IPR): Copyright and related rights: Protection for literary, artistic, and scientific works, computer programs, and databases.

Trademarks and geographical indications: Ensuring protection for unique identifiers and products originating from specific regions.

Patents and industrial designs: Protection for inventions and designs to encourage innovation and creativity.

Unresolved Issues in Goods and Services:

Tariff liberalization: Both sides still need to agree on the extent of tariff reductions for various goods, particularly sensitive items like agriculture.

Movement of professionals: India's demand for easier work visas for its professionals in the UK faces resistance from some segments in Britain.

Data privacy and localization: Regulatory differences in data protection regimes need to be reconciled to enable smooth cross-border movement of data.

E-commerce regulations: Harmonizing regulations and addressing concerns about unfair competition in the online marketplace.

While challenges remain, both India and the UK are committed to finalizing the FTA.

5. With bilateral trade between India and the U.K. increasing, how is this impacting the negotiations, and what expectations are there for the finalization of the current round of talks?

Bilateral trade between the two countries increased from $17.5 billion in 2021–2022 to $20.36 billion in 2022–2023. Both nations have ambitions for further economic cooperation and are dedicated to building a broad and mutually beneficial trading partnership. The negotiations will focus on complex issues, including goods, services, and investment. Alex Ellis, the British High Commissioner to India, mentioned that the negotiations involve trying to address tough issues in the Free Trade Agreement. It is quite apparent that because of the gaining momentum of bilateral trade between New Delhi and London, both parties are determined to avoid a situation where either side incurs a loss. India is also demanding a greater merchandise of apparel and is trying to push for more professional visas to the UK which is troublesome because historically immigration has never been an aspect of free trade agreements. Indian officials hope to tackle intellectual property rights and pharmaceuticals in a way that Indian generic medicines do not increase in cost. Lastly, they are looking at regulating agreements regarding services in a way that does not interrupt the deal.

6. Moving beyond the India-U.K. agreement, can you provide updates on the status of talks for the proposed trade deal between India and the European Union (EU)? What are the key points of discussion, especially in the upcoming seventh round of talks?

As of the provided information, the seventh round of talks between India and the European Union (EU) for the proposed trade deal is scheduled to be held from February 19-23. The discussions will focus on the modalities for the services and investments chapter. Here are the key points and updates on the status of the talks:

i. Focus on Services and Investments Chapter: The discussions in this round will specifically address the modalities for the services and investments chapter. This indicates a focus on enhancing cooperation and agreements in these sectors between the two parties.

ii. Stakeholder Consultations: The Indian ministry involved in the negotiations has held stakeholder consultations with line ministries, export promotion councils, and industry chambers on the pact. This suggests an inclusive approach to gathering input and perspectives from various stakeholders.

iii. Comprehensive Agreement: The proposed trade deal between India and the EU aims to cover various aspects of trade, including goods, services, and investments. Negotiations are likely to address issues related to market access, tariff reductions, and other trade-related matters.

iv. Strategic Importance: The trade agreement between India and the EU holds strategic importance for both parties, given the economic significance of the EU and India's desire to diversify its trade partnerships.

It's important to note that the specific details of the discussions, including potential challenges or breakthroughs, may only be known after the conclusion of the seventh round of talks in February.

7. What is the significance of the upcoming sixth round of negotiations for the proposed trade agreement between India and Peru? Are there specific areas of focus during these discussions?

Negotiations for the India-Peru Trade Agreement commenced in the year 2017 and the fifth round was concluded in August 2019. On account of COVID-19, the negotiations came to a pause. Subsequently, in August 2023, delegates from New Delhi and Lima met wherein both sides expressed an interest in resuming the trade negotiations. After that, the process of beginning talks was set in motion and the sixth round is slated to be held in December 2023, Lima in Peru. It is expected that the trade Agreement would greatly increase commerce, investment, and collaboration in a variety of areas. India and Peru's trading connections have been steadily growing. Bilateral trade volume totaled $3.12 billion in fiscal year 2022-23. India exported $865.91 million to Peru and purchased $2.25 billion from it. Motor vehicles/cars, cotton yarn, and medicines are major Indian exports to Peru, whereas gold, copper ores, and concentrates are the primary exports from Peru.

8. How has the Ministry engaged with stakeholders, including line ministries, export promotion councils, and industry chambers, regarding the India-U.K. free trade agreement and other trade deals mentioned?

The Indian Ministry, primarily the Department of Commerce, has employed a multi-pronged approach to engage stakeholders regarding the India-U.K. FTA and other trade deals. Here's a breakdown of their key initiatives:

Formal Mechanisms:

Inter-Ministerial Consultations: The Department of Commerce holds regular consultations with relevant line ministries like Agriculture, Health, and IT to ensure their concerns are addressed during negotiations.

Technical Advisory Groups (TAGs): Sector-specific TAGs, comprising representatives from government, industry, and academia, provide technical expertise and feedback on specific chapters of the agreement.

Joint Working Groups (JWGs): Established for each chapter of the FTA, JWGs consist of officials from both countries and facilitate technical discussions and exchange of information.

Open Consultation Processes:

Public Consultations: The Department of Commerce invites written submissions from stakeholders on ongoing trade negotiations, including the India-U.K. FTA. Recent consultations for the U.K. FTA received extensive responses from various industry bodies and chambers.

Stakeholder Meetings: The Ministry conducts frequent meetings with representatives from export promotion councils and industry chambers to gather feedback and address concerns.

Workshops and Seminars: The Department organizes workshops and seminars to educate stakeholders about the potential benefits and challenges of trade agreements, including the India-U.K. FTA.

Digital Engagement:

Online Consultation Portals: The Department facilitates online submissions of feedback and suggestions through dedicated portals for specific trade negotiations.

Social Media: The Ministry actively uses social media platforms to share updates on trade negotiations and engage with stakeholders in a wider forum.

Website Resources: The Department of Commerce's website provides comprehensive information on ongoing trade negotiations, including access to negotiating texts, reports, and FAQs.

Additional Efforts:

Outreach to States: The Ministry engages with state governments and officials to understand their priorities and concerns regarding trade agreements.

Parliamentary Scrutiny: The Department interacts with Parliamentary committees to ensure transparency and accountability in the negotiation process.

Industry-Specific Forums: The Ministry participates in industry-specific forums and events to gather insights and address concerns from relevant sectors.

9. Regarding the India-Oman free trade agreement, what substantial progress has been made, and can you share insights into the discussions leading up to the next round of talks starting from January 16?

Bilateral agreements between India and Oman include various sectors such as Health, Tourism, Military, Space, Agriculture, Maritime Transport, Joint Investment Fund and so on; through these, the trade during FY 2021-2022 reached US$ 9.988 billion and for the year 2022-2023 reached US$ 12.388 billion.

According to officials, the negotiations for the pact are progressing well and the talks on most of the chapters have been concluded by both sides, They further reported that good progress has been made since two rounds of in-person negotiations and many inter-sessional meetings have already been held, New Delhi and Muscat are focusing on a mutually beneficial agreement contributing to the welfare and development of the people of the two countries. Deep Kapuria, an international trade expert and Chairman of Hi-Tech Gears remarked that this pact would also contribute to the augmentation of India's trade relations with Middle Eastern countries, constituting a burgeoning market for domestic goods. "The agreement assumes particular importance in light of India's ambitious target of achieving $1 trillion in merchandise exports by the year 2030," he stated. The accord assumes significant strategic significance for India, serving as a pivotal entry point for the nation to fortify its influence within Middle Eastern economies. This collaboration with Oman has the potential to function as a catalyst, propelling India's geopolitical prominence and cultivating more profound affiliations with other nations in the Middle East.

10. How is the bilateral trade data influencing the ongoing negotiations, especially considering the increase in trade between India and the U.K. from $17.5 billion in 2021-22 to $20.36 billion in 2022-23?

The general context suggests a positive trend in economic relations, The UK is India’s 15th largest trade partner. As per the UK government, over the four quarters leading up to the end of Q1 2023, the aggregate trade value in goods and services, encompassing both exports and imports, stood at £36.3 billion between the UK and India. This marks a substantial increase of 34.2 per cent, equivalent to £9.2 billion in current prices, compared to the four quarters ending Q1 2022. In terms of foreign direct investment (FDI), the UK's outward FDI stock in India was £19.1 billion in 2021, representing 1.1 per cent of total UK outward FDI stock. In contrast, the inward FDI stock in the UK from India in 2021 was £9.3 billion, accounting for 0.5 per cent of total UK inward FDI. It is envisaged that India and the United Kingdom would be able to expand their bilateral commerce after signing their FTA. The objective is to increase bilateral trade in products and services to $100 billion by 2030. Around 70 per cent of India-UK commerce is controlled by the services sector. The planned India-UK FTA will eventually encompass 90 per cent of tariff lines.

Sujit Nair, a Track 1.5 Diplomacy pioneer in India UK/India EU Corridor, enhances India's ties with the EU and the UK. With 14 years of experience, he conducted 25 engagements at the UK Parliament, 4 at the European Parliament, and various campaigns fostering India's relations with the UK and EU.