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

Summary of conclusions and recommendations

Strategic considerations

1.The potential economic gains from a comprehensive trade agreement with India are projected to be more significant than the benefits from trade agreements with Australia, New Zealand or Japan. (Paragraph 19)

2.We welcome the Indian government’s new approach to opening trade links and the positive momentum achieved. (Paragraph 20)

3.India’s history of relatively thin FTAs, historically protectionist policies and different regulatory approaches, mean that the barriers and challenges to trade with India are considerable and deep-rooted. Overcoming these barriers would require, in many areas, changes to India’s domestic legislation, which could be a lengthy process. (Paragraph 21)

4.India’s record and context raises questions over whether—notwithstanding the Government’s ambition—a comprehensive trade agreement is achievable in the short term and to a fixed deadline. An interim deal could lock in early gains, but it could also put off a more comprehensive deal if the UK makes too many early concessions. (Paragraph 22)

5.It is difficult to envisage that any deal with India would be as comprehensive as any deal the UK has agreed with other like-minded partners. There are therefore questions over how comprehensive the deal with India should be and its minimum requirements. It is regrettable that the UK Government has not set out the areas it would prioritise for inclusion. We believe it should. The very general, high level, indeed at times overly ambitious, Negotiating Objectives offer no clue as to the Government’s negotiating priorities.(Paragraph 23)

6.Given the challenges of securing a comprehensive deal with India, it is questionable whether the setting of an ambitious but arbitrary deadline for the conclusion of the negotiations is the right approach. The UK Government must not accept a poor agreement simply to meet a deadline. We welcome the Secretary of State’s assurances that the Government will not compromise on the quality and scope of the FTA, and that it will only sign up to an agreement by Diwali if it works for UK businesses. (Paragraph 24)

7.Unlike with Australia or New Zealand, there are substantial difficulties—and therefore costs—when doing business in India. These are not adequately captured by the Government’s Strategic Approach and Negotiating Objectives, but include a complex bureaucracy (which can change from state to state) and tax regime. The Negotiating Objectives thus come across as unrealistic. We call on the Government to engage with Parliament and wider stakeholders on how it is seeking to address these challenges, and which barriers are being prioritised. (Paragraph 25)

8.Facilitation payments are common in India, yet modern international business standards condemn this. The Government must satisfy itself and press India on making progress towards meeting international business standards. (Paragraph 26)

9.We also call on the Government to ensure that any agreement with India includes robust and enforceable provisions on non-circumvention and dispute resolution. (Paragraph 27)

10.While the gains from an FTA with India are projected to be more significant than those from an FTA with Australia, New Zealand or Japan, they are more uncertain. India’s economic landscape is rapidly evolving and we call on the Government to set out how it will ensure that the agreement takes account of and can respond to changes in the Indian economy, so that any final agreement continues to work for the UK long term. (Paragraph 28)

The agreement

11. A trade agreement should include the substantial reduction of Indian tariffs and other charges on UK goods. (Paragraph 42)

12.There are concerns about the business environment of India. As a result, the standard provisions in customs and trade facilitation, TBT and SPS will not be sufficient for UK businesses. The Government must go further in lowering ‘at and behind the border’ barriers to ensure that UK businesses are not disadvantaged in the Indian market. (Paragraph 43)

13.While consumers may benefit from trade deals through cheaper goods and greater choice, the Government should not agree regulatory equivalence that would result in reduced standards or lower consumer protection. (Paragraph  44)

14.There are opportunities for the UK to secure greater market access in services—in particular as India does not have any commitments at WTO level with regards to legal, accounting and audit services. However, India’s lack of WTO services commitments and domestic regulatory framework also point towards the challenges of securing a deep agreement on services. The Government should prioritise improvements that provide a solid environment for UK business. (Paragraph 53)

15.There are other improvements that could be delivered on mutual recognition of qualifications, and financial services regulatory dialogues. We call on the Government to provide a more detailed view of the services benefits from this FTA, including a consideration of the complementarities between the UK and Indian services sectors. (Paragraph 54)

16.Mobility is important to services economies, and it is therefore right that both the UK and India have substantive demands in this area. However, the Government’s approach to mobility schemes and the temporary movement of business people between the UK and India in an FTA remains unclear, including on the limits of access, and should be clarified. (Paragraph 55)

17.The Negotiating Objectives do not set out the Government’s position on alleged Indian demands to exempt certain Indian workers from making National Insurance contributions in the UK. If the Government intends to agree to those demands, it must conduct an impact assessment. We call on the Government to spell out the likely costs, to what extent Indian workers would have access to UK benefits, and the implications for other non-British nationals working in the UK. (Paragraph 56)

18.The Government should seek provisions that ease restrictions on foreign direct investments in India and strengthen protections for investors. (Paragraph 62)

19.There is a strong case for including investor-state dispute settlement (ISDS) provisions in an agreement with India, yet the Government does not mention ISDS in its Negotiating Objectives.(Paragraph 63)

20.We call on the Government to clarify its overall policy towards ISDS, on other mechanisms for investment protection, and whether it is seeking ISDS in its FTA with India (as we believe it should). Whichever mechanism is put in place, it must be independent and enforceable. (Paragraph 64)

21.UK businesses make a strong case for the inclusion in FTAs of provisions which ban the localisation of data and support cross-border data flows, while consumer groups rightly seek to ensure that UK citizens’ personal data will be protected. However, provisions preventing unjustified data localisation and allowing the free flow of data in India would require changes to India’s domestic legislation, and would require a complicated and lengthy process. We call on the Government to explain how it is aiming to deliver UK business and consumer interests in this context. (Paragraph 67)

22.India’s intellectual property (IP) regime provides significantly fewer protections than the UK’s IP regime. A trade agreement should commit India to strengthening its IP protections, but we note that there are limits to what can be achieved in the short term.(Paragraph 73)

23.We welcome that the Government is seeking a balance between securing patent provisions while reflecting wider public interests, including the production of affordable medicines by India. We invite the Government to explain how this balance can be achieved. (Paragraph 74)

24.In line with other FTAs, we welcome the Government’s ambition to ensure protection for UK Geographical Indications (GIs).(Paragraph 75)

25.The Negotiating Objectives on climate and the environment are overly generic and appear to lack ambition. We welcome the commitment to reaffirm both countries’ commitments under the Paris Agreement. But greenhouse gas emissions are likely to rise as a result of the FTA and the Government should set out how it plans to mitigate them. (Paragraph 82)

26.We call on the Government to provide an estimate of the potential carbon leakage that may result from an FTA with India. (Paragraph 83)

27.The Government should include transport emissions and carbon leakage in its estimate of the change in overall greenhouse gas emissions associated with a UK-India FTA (and any other FTAs). (Paragraph 84)

28.The trade relationship offers an opportunity to collaborate with India on the environment and climate. The environment and climate chapter should include a commitment to collaborate on carbon emissions trading schemes in the future. It would be helpful to understand how the Government’s priorities on international trade link into its broader environmental and climate objectives. As we noted in our report on the UK-Australia FTA, a lack of tie-up of trade policy with the UK’s climate objectives is again apparent. (Paragraph 85)

29.The Government should consider how it can support India’s decarbonisation efforts. (Paragraph 86)

30.The Government should negotiate traceability provisions to guard against the import of goods linked to deforestation. (Paragraph 87)

31.The generic Negotiating Objectives on labour do not go into sufficient detail. It is unclear whether the Government is seeking to encourage better labour conditions in India, despite the Objectives’ focus on the UK’s international commitments. Because of the lower levels of labour protections in India, it is unclear whether a non-regression objective is meaningful. (Paragraph 91)

32.The Government should either seek to strengthen labour protections informally, through co-operation mechanisms established in the trade deal, or formally, by requiring minimum levels of protection. It should discuss options with stakeholders, including development organisations and trade unions. (Paragraph 92)

33.There are significant barriers to UK businesses accessing procurement opportunities in India, which the FTA will need to address. The Objective to secure “provisions to ensure that procurement processes are fair, open, transparent and accessible” comes across as both vague and unrealistic in its ambition given the Indian context.(Paragraph 98)

34.We call on the Government to include a dedicated consumer chapter, as well as a chapter on innovation that focuses on strengthening co-operation. (Paragraph 99)

35.The Government should consider the trade diversion impacts on India’s neighbouring developing countries and any possible mitigating measures that it could take. (Paragraph 100)

Government engagement and consultation

36.The published Negotiating Objectives are very general, at times overly ambitious and even unrealistic. We call on the Government to provide more detailed and concrete Objectives for future negotiations. (Paragraph 106)

37.We reiterate our recommendation that the Government should publish a trade policy, showing how it links into broader foreign policy, security, defence and other domestic objectives, as well as labour, women’s and human rights, and the environment. This will enable trade policy to be understood in relation to other priorities and enable us to assess the impacts and trade-offs. (Paragraph 107)

38.While we do not expect the Government to share sensitive negotiating information in a public letter, round updates should at least give an indication of what has been discussed, where progress has been made, and provide a flavour of the obstacles encountered and choices faced by negotiators. The Committee should not have to rely on press reports for this information. (Paragraph 111)

39.We thank the devolved administrations for the evidence they submitted. In the absence of detailed information provided by the UK Government on the discussions it has had with the devolved administrations, it is vital that we hear from them directly. We reiterate our open invitation to the devolved administrations and legislatures to raise with us any issues they consider to be significant. (Paragraph 120)

40.While we accept that the negotiation of trade agreements is a reserved competence, trade agreements will have a significant impact not just on devolved policy areas, but also on devolved economies more generally (even in reserved areas) and interests.(Paragraph 121)

41.We remain concerned about the adequacy of the information shared with the devolved administrations regarding matters that are reserved, such as tariff liberalisation for sensitive goods. (Paragraph 122)

42.We call on the Government to ensure that consultation with the devolved administrations is comprehensive, transparent, detailed and timely, and that their views are represented throughout the negotiations, including on reserved matters that may have an impact on them. The quality of engagement with the devolved administrations must not be compromised by the pace of the negotiations. (Paragraph 123)

43.We welcome that the Government has conducted a modelling review to provide a more detailed sub-national assessment of the impact of FTAs. We look forward to receiving assessments with more detailed information on the impact of FTAs on the nations and regions of the UK.(Paragraph 124)

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