UK–India free trade agreement: Scrutiny of the Government’s Negotiating Objectives Contents

Summary

The potential economic benefits to the UK of a trade deal with India are higher compared to other post-Brexit agreements concluded to date. A growing economy and expanding middle class in India with an appetite for specialised education, insurance and healthcare services, provide significant opportunities for UK businesses and the services sector in particular. The two countries already have many cultural, trade and professional links but there is room for expansion. The Government’s efforts to conclude a trade deal with India are therefore to be welcomed.

We however question the value of setting any deadlines for the conclusion of negotiations—let alone, like in this case, a short end of October one. With Australia and New Zealand, there was a clear rationale for concluding negotiations at speed to facilitate accession to the CPTPP. In this case, the deadline appears arbitrary. It risks giving up a good deal for a fast one and sets a time over and above content. This is particularly pertinent in the light of India’s own record in concluding free trade agreements (FTAs). We welcome the assurances given by the Rt Hon Anne-Marie Trevelyan, Secretary of State for International Trade, that the Government will only sign a deal by Diwali if it is good for UK businesses.

The Negotiating Objectives set for this deal are presented out of context and at times appear overly ambitious and unrealistic. It is hard to judge them given how vague and high level they are, but some seem particularly unattainable.

This is because India has a notoriously difficult business environment—corruption levels are high, business permits are difficult to obtain, tax and customs processes are complex, levels of contract enforcement are low, and IP protections are limited. The negotiations will need to focus on addressing these issues, while acknowledging that in some cases this may require changes to India’s domestic laws, which may be unrealistic to achieve or take a very long time. Yet the Government’s Strategic Approach provides only limited information on the challenges of doing business in India and how these may be overcome. A key measure of success will be whether UK businesses notice a positive difference once any final deal is implemented.

Given the desire to facilitate UK investment into India, it would be essential for investors to have access to independent and robust dispute settlement, yet the Negotiating Objectives neither include investor-state dispute settlement (ISDS) provisions, nor set out an independent and enforceable alternative.

The aspirations in the Negotiating Objectives are also challenging because some would require changes to India’s own cultural and legal approach, which are difficult to achieve, or would take a long time. The Government has not been specific about the importance it will give to human, environmental and other rights and protections, nor (in most cases) about its red lines. On the environment, the Government’s Strategic Approach does not explicitly refer to the carbon intensive nature of India’s economy, nor does it provide clear information on the impact of the FTA on overall greenhouse gas emissions. There is an opportunity to use the trade relationship to strengthen co-operation on mitigation measures and support the decarbonisation of India’s economy, but we regret that this is not reflected in the Negotiating Objectives.

India’s reputation as a difficult negotiating partner, its history of relatively thin FTAs and different approach to regulation all raise questions over whether a comprehensive trade agreement with India is achievable in the short term. An early interim agreement—like the one India recently concluded with Australia—could lock in early gains, but could equally make a more comprehensive agreement more elusive if too many early concessions are made. The Secretary of State has emphasised that the Government intends to conclude an agreement that is comprehensive, but it is unclear how comprehensive it can be and what areas will be prioritised for inclusion.

For the Committee, it is hard to judge the Objectives given their lack of specificity, but also because we lack a context for them. The Government has failed to produce an overarching trade policy showing how trade fits into its foreign, defence, environmental and domestic objectives. Indeed, given the current circumstances where India has not only failed to support the UK-led sanctions against Russia but has increased its trade with it, it is unclear whether the Government is planning to factor this into our trade relations with India. We reiterate our call, previously made in our report on the UK-Australia FTA, for the Government to publish a comprehensive trade policy, and we welcome the Secretary of State’s commitment to considering our request further during her only evidence session with us.

We make this report to the House for debate.





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