LONDON — After numerous delays, the U.K. and India have reached a significant milestone by finalizing a free trade agreement (FTA), bringing an end to years of negotiations marked by political changes and missed deadlines. This long-anticipated deal, which was detailed on Tuesday, has resulted in compromises from both countries, leading to a range of adjustments in tariffs, visa regulations, and access to markets.
What we know about the trade agreement
The FTA outlines a substantial reduction in Indian tariffs, impacting 90 percent of product lines, with 85 percent of these expected to become completely tariff-free within the next decade. According to the U.K.’s Department for Business and Trade (DBT), British alcoholic beverages, particularly whisky and gin, are poised to benefit significantly. Currently facing tariffs as high as 150 percent, these rates will be reduced to 75 percent, eventually dropping to 40 percent over ten years. Mark Kent, chief executive of the Scotch Whisky Association, described this alteration as “transformational”, projecting the creation of approximately 1,200 jobs in the U.K.
Moreover, the automotive sector will see a reduction in tariffs from over 100 percent to just 10 percent, albeit with a quota system in place. Trade Secretary Jonathan Reynolds confirmed that the U.K. would be entitled to a quota allowing the export of 22,000 high-value electric vehicles to India at the reduced tariff rate. In exchange, India will be permitted to send low- and mid-range electric vehicles to the U.K., with discussions ongoing to align this quota with production schedules.
The deal also brings favorable news for other sectors, including cosmetics, aerospace, and medical devices, alongside reductions on British imports such as clothing and certain food products. However, some tariffs, particularly in the dairy and rice sectors, remain intact to protect local industries.
In terms of economic impact, the government anticipates a dramatic 59.4 percent increase in U.K. exports to India, potentially reaching £15.7 billion, while Indian exports to the U.K. are projected to rise by 25 percent, or £9.8 billion. This overall boost translates into an increase in trade worth £25.5 billion, equating to about 0.1 percent of the U.K.’s GDP by 2040.
Contentious issues and areas of ambiguity
One of the most debated aspects of the negotiations has centered on visa regulations. Although India heralded the deal as a victory regarding the exemption of its workers from U.K. employee tax contributions, political figures, including Conservative Leader Kemi Badenoch, have criticized this outcome, asserting that it represents a loss for Britain.
As part of the agreement, a new visa route for temporary workers will be opened, capped at 1,800 individuals, which includes professions such as chefs and musicians. However, these workers must still fulfill standard visa requirements, and the cap remains unchanged. Additionally, a Double Contributions Convention has been established, ensuring Indian and British workers will only pay national insurance contributions in one country for up to three years.
In a notable development for U.K. businesses, British firms will gain access to India’s procurement market, a significant opportunity previously restricted. This access allows them to bid for around 40,000 tenders valued at a minimum of £38 billion annually, following a long-standing policy that limited foreign participation in Indian government contracts.
Despite these advancements, several crucial questions remain unanswered. Notably, the fate of discussions surrounding U.K. carbon taxes is uncertain, as the FTA does not address this contentious issue directly, nor has there been a resolution regarding a bilateral investment treaty that would allow for easier investment and dispute resolution between the two nations. Furthermore, the actual benefits to service firms remain unclear, with some sectors expressing disappointment at the perceived limitations of the trade deal.
As the U.K. government prepares to undergo the ratification process, which could take approximately 12 months, the opposition has voiced concerns about the lack of parliamentary consultation. Under existing regulations, while Parliament can delay ratification, it does not have the power to outright reject the treaty without the government’s explicit consent.
Overall, while the U.K.-India trade deal signifies a step forward in international trade relations, the complexities and challenges of implementation will require close scrutiny in the coming months.