Preparatory work for the India-UK Free Trade Agreement is underway and bilateral trade working groups are expected to conclude their talks in September, joint scoping talks are due to start on October 1, and formal trade talks could. start by November 1, 2021.
India-UK economic and financial dialogue raises FTA talking points
Climate change, investment facilitation and addressing service sector concerns were key talking points for India and the UK during the 11e The India-UK Economic and Financial Dialogue (EFD) was held virtually on September 2, 2021.
The agreements reached at the EFD and the sectoral grievances highlighted add to the momentum of the bilateral trade negotiations.
India and the UK are drawing up their first FTA, which aims to double bilateral trade by 2030. The two sides hope to officially launch FTA negotiations by November and reach an interim agreement by November. March 2022, followed by a comprehensive agreement.
An India-UK FTA will be a big victory for UK manufacturers, as average tariffs in India on UK exports are more than three times higher than those charged on Indian products in the UK. India has also put in place high non-tariff barriers, which should be addressed by the FTA.
In addition, the service sector is a major contributor to the UK and Indian economies and is expected to be the main agenda for bilateral FTA negotiations.
Areas of bilateral investment to include green economy, clean energy
At the 11th Economic and Financial Dialogue, India and the UK agreed to a package of nearly £ 900 million (US $ 1.2 billion) of public and private funding for green projects and renewable energies.
“This includes an investment of US $ 1 billion from CDC, the UK’s development finance institution in green projects in India, joint investments from the two governments to support companies working on innovative green technology solutions , and a new private and multilateral investment of US $ 200 million in the joint Green Growth Equity Fund, which invests in Indian renewable energies ”, as through the British Treasury.
India and the UK also welcomed the launch of the Climate Finance Leadership Initiative (CFLI) India Partnership which will mobilize private capital for sustainable infrastructure in India.
The CFLI-India partnership offers a roadmap for funding clean energy projects involving wind power, solar power and other green technologies. The partnership will be led by a group of leading financial institutions responsible for $ 6.2 trillion in assets and is chaired by Michael Bloomberg, United Nations Special Envoy for Climate Ambition and Solutions.
Meanwhile, on September 13, UK Energy Minister Anne-Marie Trevelyan announced next cycle of its renewable energy program – the Contracts-for-Difference (CfD) program – where eligible projects will be guaranteed a minimum price at which they can sell electricity and renewable energy producers can bid for CfD contracts in a series of auction. According to the UK government, the latest round will provide £ 200million in support for offshore wind projects and £ 55million in support for emerging renewable technologies.
The UK aims to be able to cut emissions significantly before hosting the United Nations Climate Change Conference (COP26) in Scotland in November this year. This creates multiple industrial and investment opportunities for cleantech and renewable energy players in India and the UK.
India-UK FTA negotiations to start November 1, 2021
UK companies and exporters had until August 31 this year to submit their contributions on areas of the proposed FTA with India as part of a formal public consultation process.
The next steps will involve the UK Department for International Trade addressing these suggestions and finalizing their negotiating position.
Official India-UK FTA talks are expected to start by November 1, 2021, according to Piyush Goyal, India’s Minister of Trade and Industry and his UK counterpart Elizabeth Truss, Secretary of State for International Trade, after their virtual meeting on Monday, September 13. .
Meanwhile, India-UK Bilateral Working Groups (BWGs) for different tracks have continuously held discussions to understand each other’s ambitions, interests and sensitivities and these discussions will likely end by September.
According to a reading out loud of the Goyal-Truss meeting released by the UK Department for International Trade, discussions between the UK and Indian governments will help the two countries better understand each other’s position on potential chapter areas in any trade agreement, including tariffs, standards, intellectual property and regulatory data.
Goyal pointed out, in a statement from the Ministry of Commerce Press release, that substantial work had already been done and extensive stakeholder consultations had taken place, involving industry and trade associations, export promotion councils, buyers / sellers associations, regulatory bodies, ministries / departments and public research organizations.
The two parties therefore intend to begin their joint scoping discussions on October 1, 2021, to finalize the terms of reference for the launch of negotiations in November.
What can we expect from an interim agreement?
An interim trade deal will serve as a first step in an FTA and allow Indian and UK companies to reap early benefits from the partnership in certain commodities and service lines.
For example, in the service sector, the inclusion of certain services of mutual interest could be requested as a priority in the interim agreement, which will become immediately deliverable.
India’s Commerce Minister Goyal explained that, if necessary, the two sides could sign mutual recognition agreements in selective services such as nursing and architectural services.
Objectives of an India-UK FTA
Facilitate market access
Unequal market access and trade protectionism, as evidenced by India’s high tariffs, in particular, have been echoed by UK trade negotiators. The average tariff imposed on Indian export goods to the UK was 4.2 percent, while it was 14.6 percent for UK exports to India.
In fact, around 66% of product lines exported from India to the UK were duty free, while only 3% of UK product lines could enter India without being subject to customs duties.
India’s non-tariff barriers include a large number of sanitary and phytosanitary measures, technical barriers to trade, quantitative restrictions, tariff rate quotas and safeguards.
Through the FTA, however, the UK is likely to want greater market access for items other than automobiles and wines and spirits, with trade diversification a key goal for London in the aftermath of Brexit.
India too, is to make gains by entering new export markets in areas where it faces high tariffs such as clothing, textiles and footwear.
The UK’s total trade in goods and services with India grew by 51% from £ 9.8 billion in 2011 to £ 14.8 billion in 2019, its exports of goods and services to India rose 3%, from £ 8.2bn to £ 8.5bn, over the same period. period.
Business opportunities in the service sector, facilitated professional mobility
The service sector accounts for 71 percent of UK GDP and 54 percent of India’s GDP.
In a joint statement to the virtual EFD in early September, Nirmala Sitharaman, Indian Minister of Finance, and Rishi Sunak, British Chancellor, agreed they would be ambitious in their negotiations on the services sector.
The UK wants new opportunities for its financial companies and can help more Indian companies access finance in London. The end of the retrospective tax regime and a higher limit for foreign direct investment (FDI) in the insurance sector – increased from 49% to 74% – as well as the removal of ownership and control requirements of the sector were appreciated by London. These measures will strengthen the business environment and prove to be facilitating.
On the Indian side, a liberal visa regime and mutual recognition agreements for service providers are expected to facilitate the movement of Indian workers to the UK and expand the reach of businesses in the professional services sector.
Of the two countries, India imposes significantly higher restrictions in all sectors covered by the OECD Services Trade Restriction Index. The smallest sectors are freight rail transport, legal, accounting and architecture.
Indian sectors of interest to UK investors
India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices around the world, including in Delhi and Bombay. Readers can write to [email protected] for more help on doing business in India.
We also maintain offices or have alliance partners assisting foreign investors in Indonesia, Singapore, Vietnam, Philippines, Malaysia, Thailand, Italy, Germany, and the United States, in addition to the practices of Bangladesh and Russia.