India’s Attempts at Regional Trade Agreements: A Glimpse into the India-UK Free Trade Agreement

Dyuti Pandya

September 14, 2023

As democratic societies continue to become fragmented and politicized, regionalism is a growing trend providing a narrative to the counterbalance. Regional Trade Agreements (RTAs) are continuing this narrative by acting as forces to drive the much-needed economic development across societies. In this regard, India is falling behind in upholding the free trade principle through the RTA dialogue. To date, India has negotiated only 18 Regional Trade Agreements. Striving to keep the negotiations going with its developed counterparts, on July 18, 2023, the United Kingdom and India concluded the 11th round of talks for the UK-India Free Trade Agreement. The negotiation involves arduous dialogues over the table as both parties are struggling to draw any formalized conclusions in free trade talks. This has largely been due to ingrained differences in key tariff lines and investment protection rules. A British official said, “We are clear that we will only sign when we have a deal that is fair, balanced, and ultimately in the best interests of the British people and the economy.”

The main aim of signing a free trade agreement (FTA) is to increase market access. This is done by increasing the number of suppliers who can serve the buyers and the number of consumers who can be served by their producers in markets. Trade has continued to be a powerful driver in global economic development and poverty elevation. In the growing regionalism debate, India has however remained reluctant to sign FTAs during the past decade. The ones which India has signed so far have resulted in numerous challenges: inverted duty structures, high import duties on raw materials and low duties on finished goods. This inevitably discourages the production and export balance of value-added items and hinders the supply chains. Global Trade Research Initiative)’s Ajay Srivastava said, “India’s weak export performance with FTA partners should not surprise us. It happened because of high tariffs in India and significantly lower tariffs in its FTA partners.”

For the most part, India is continuing to remain uncompetitive in economic inputs. For the India-UK FTA, there appears a lack of consistency and harmony between the objectives of what the FTA should be and how the implementation of those modalities should occur. For instance, on sub-deals in whiskey and automobiles, UK’s Minister for International Trade, Nigel Huddleston said, “We would like to see tariffs come down (however) our pacts are not just about tariff but also a lot about non-tariff barriers.” Here the burden of proof lies on the protectionists to justify the government-erected obstacles and not on the free traders to justify keeping commerce free.

Adam Smith once questioned, “How quickly should the obstacles in trade be removed.” The free trade theory says “immediately.” However, the issue presently is finding the appropriate speed of moving towards free trade to justify a speedy abolition of tariffs, and in this case how fast should India pursue a free trade policy. Most free trade proponents have called for the elimination of government-erected barriers and explain that tariffs usually change with changes in the political influence of different producer groups and governments in power. If governments shield resources in protected industries from competition, tariffs will in turn dim a firm’s incentives to innovate but also prevent resources from moving to other industries to produce more economic value.

Sean Doherty, the World Economic Forum’s head of international trade and investment said, “As India re-engages with strategic partners through free trade agreements, a clearer picture forms of what it wants from the trading system, beyond access for its strong services sector.” Thus, the extent of free trade between India and the UK will depend on both countries’ abilities to remove politically sensitive market barriers and non-tariff barriers. Without such mutual concessions, the India-UK FTA will not realize the potential of a strategic economic partnership.

Author

Written by Dyuti Pandya

Dyuti Pandya is studying an LL.M - International Trade, Gujarat Maritime University

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