January this year saw the formal launch of negotiations for an India-United Kingdom free trade agreement (FTA) when Commerce and Industry Minister Piyush Goyal met U.K. Secretary of State for International Trade Anne-Marie Trevelyan during her visit to New Delhi. These negotiations were aimed at achieving a “fair and balanced” FTA and cover more than 90% of tariff lines so as to reach the bilateral trade target of around $100 billion by 2030. It has been suggested that this pact will be a “new-age FTA” covering more than just goods, services and investments and include areas such as intellectual property rights, geographical indications, sustainability, digital technology and anti-corruption.
Despite some potential challenges, there is a new momentum in the India-U.K. bilateral engagement these days with both sides confident of moving forward swiftly. Mr. Goyal was emphatic that “nothing is necessarily a deal-breaker in this agreement,” and suggested that no one should “worry about issues which are sensitive to any country, because both sides have agreed that sensitive issues are not our priority”. Ms. Trevelyan viewed this deal as “a golden opportunity to put UK businesses at the front of the queue as the Indian economy continues to grow rapidly”, that will “unlock this huge new market for our great British producers and manufacturers across numerous industries from food and drink to services and automotive”.
New Delhi is hoping to conclude its first FTA in over a decade with the United Arab Emirates this year. And another one with Australia is in the offing.
There have been indications that instead of the two nations trying to tackle all sensitive issues in one go, there could be an interim pact to cover “low hanging fruit” to be followed by a full-fledged FTA in a year’s time. Such an early harvest deal can often be deleterious for the prospects for a full FTA, but given India’s abysmal reputation in concluding FTAs, this may not be a bad strategy in keeping interlocutors engaged in the process.
A new trade outlook
As the global economy undergoes a fundamental transformation in the aftermath of COVID-19 and supply chains get restructured, India cannot lose any more time in setting its house in order. New Delhi is hoping to conclude its first FTA in over a decade with the United Arab Emirates this year. And another one with Australia is in the offing. If concluded, the India-U.K. FTA will be the next in line at a time when New Delhi is demonstrating a new seriousness of purpose as it negotiates 16 new and enhancing several other trade pacts with nations as diverse as Canada, the United States, the European Union and South Korea.
In fact, just before the launch of FTA talks with the U.K., India and South Korea also decided to expedite the upgradation of the existing FTA, formally called the Comprehensive Economic Partnership Agreement. The Narendra Modi government is showing a newfound flexibility in engaging with its partners on trade as it seeks balanced trade pacts at a time when new trade blocs in the Indo-Pacific such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) are gaining traction. Strategic partnerships without strong economic content would have no meaning in the Indo-Pacific, where China’s economic clout is growing by the day.
The reason
Britain has made a trade pact with India one of its post-Brexit priorities as it seeks a greater role in the Indo-Pacific. India is at the heart of the U.K.’s Indo-Pacific ‘tilt’, which has generated considerable interest around the world. British Prime Minister Boris Johnson came to office promising one of the deepest and broadest British foreign, security, development and defence reviews since the end of the Cold War. And the Integrated Review (a ‘comprehensive articulation of the U.K.‘s national security and international policy) released in March 2021 categorically underlined that, “In the decade ahead, the UK will deepen our engagement in the Indo-Pacific, establishing a greater and more persistent presence than any other European country”. While the U.K. will also be launching trade negotiations this year with Canada, Mexico and the Gulf to underscore its ‘Global Britain” credentials, a trade deal with India along with its membership in the CPTPP remains critical in anchoring the U.K. economically to the Indo-Pacific.
Many factors at play
A range of factors have coalesced to create an impetus for the U.K. to adopt a more robust Indo-Pacific strategy: the trading implications of Brexit; the U.K.’s changing approach towards China — shifting from being a major proponent of China to perhaps the most hawkish in Europe; and the fact that the U.S., the U.K.’s closest ally and security guarantor, remains firmly focused on the Indo-Pacific. Like its allies in the region, the U.K. recognises the importance of a free and open Indo-Pacific to global stability and prosperity, and has made clear its intentions to deploy strategic assets to this end. London is also looking to amplify its efforts by entering into the regional security architecture. The trilateral security partnership between Australia, the United Kingdom, and the United States (AUKUS), announced in September 2021, enabling Australia to acquire nuclear-powered submarines with assistance from the U.S. and U.K., has given London a greater voice in the region.
Trade and investment will be a key dimension of this U.K. tilt. Brexit has necessitated greater access to non-EU markets, and the U.K.’s changing relationship with China requires a diversification of trading partners. But this shift in focus is also driven by a recognition that the Indo-Pacific is now largely the force behind global economic growth. The U.K. is looking to leverage its historical connections, development work, and its credibility when it comes to combating climate change (particularly relevant to these low-lying states vulnerable to sea-level rise) to help establish itself as a serious player in the region where there remain serious doubts about the U.K.’s staying power.
Through its Indo-Pacific tilt, the U.K. is finally carving out a direction and purpose to its post-Brexit foreign policy. And it is this prioritisation that has opened up a new window for New Delhi and London to quickly finalise their FTA. It is a unique “now or never” moment and the two sides seem willing to seize it despite the challenges.
Professor Harsh V Pant is Director, Studies and Head of the Strategic Studies Programme at Observer Research Foundation, New Delhi. He holds a joint appointment with the Department of Defence Studies and King’s India Institute as Professor of International Relations at King’s College London.
To read the full commentary from the Observer Research Foundation, please click here.