Several thorny issues remain. Yet, both the UK and India are committed to a Free Trade Agreement between the two countries. UK Prime Minister Rishi Sunak had said before the G-20 Summit in Bali (Indonesia) that his approach to the FTA with India will be one “where we don’t sacrifice quality for speed. I want to take the time to get trade deals right”. The deal was to have been signed during Diwali, but missed the deadline. Now the indication is that it would be concluded this year, going by the statement of UK Trade Secretary Kemi Badanoch recently.
How does the FTA benefit India? If the current negotiations prove successful and the FTA is signed, it will be possible for Indian goods including textiles to entire the UK market duty free, and vice versa. Both sides have urged their negotiating terms to iron out differences in the spirit of mutual accommodation, based on the principle of reciprocity for a balanced mutually beneficial fair and equitable outcome. According to Badenoch both sides want a “really ambitious” deal but it really has to be “balanced”.
It is to be noted that there are no textile mills in the UK. So, Indian textile products have great potential in the UK. There were some mills in Manchester a few years ago. According to data available, the UK alone accounts for about 61 percent of total cotton textiles imported into the European Union. Again, 25 percent of India’s textiles and clothing are destined to the UK. Any preferential arrangement like the FTA could help India.
Among the thorny issues are the high tariffs on Scotch whisky and European cars levied by India. The EU is also concerned about these and this was conveyed to Indian officials during the negotiations on forging a Broad based Trade and Investment Agreement (BITA) with India. The whisky issue is more about the UK where it is produced. India had lowered the duty on whisky from 150 percent to 100 percent. In this regard, the UK trade Secretary Kemi Badanoch had said “I am working hard to get a deal that works for them. But the UK is not just about whisky, there is much more. India wants much more from us “Another contentious issue pertains to government procurement where the UK wish to participate. New Delhi has not so far agreed to consider this demand.
Intelectual Property Rights (IPR) on which Indian officials and health activists have concerns. Badenoch said that in terms of IPR, “we are other areas where we are looking at. It may be difficult because the UK is an advanced country that can afford a lot more than India can do in terms of size and per capita income. You need an FTA that is able to manage those two different scenarios. It will probably reduce the scope of what we can do but there is a lot of positive stuff”.
Regarding sensitivities in India on agriculture, Badenoch said both sides wanted to protect farmers. What was required was to ensure that people are not overly worried about problems that were not going to occur in this field. “Whenever a change is going to occur, people are anxious about what the change would be and what we are trying to do is create an FTA that improves every body’s circumstances”.
The FTA with the UK is expected to be quite different from the previous ones signed by India with several other countries in the past such as Sri Lanka, Bangladesh etc., An “open strategy” is expected to be adopted by New Delhi to engage in several other areas beyond goods and services, signaling a marked shift in stance. The earlier FTAs had led to large scale imports not anticipated by the government.
It has been recognized that misuse of the FTA route has often been flagged by the domestic industry repeatedly and urged the government to review the existing FTAs to stop the misuse. Claims and benefits under FTAs have posed a threat to the domestic industry and such imports require stringent checks, says Finance Minister Nirmala Seetharaman. In the last budget session presented by her a provision was introduced in the customs act to ensure that FTA benefits are availed of correctly. The rules for implementing this provision were issued in January 2022.
New verification mechanism that came into force in September 2021 is expected to help curb the misuse. It requires importers to exercise due diligence to ensure they satisfy the rules of origin criterion for eligibility of duty concession under FTA and declare this to the customs authorities. Supporting documents and information may also be sought by the customs department and in case of any doubt deny the benefit of duty concession or allow it provisionally pending verification. Extensive discussions have been held by the government to sensitize them about the new rules and the need to keep a close watch.
The textile industry has witnessed a major shift in the last three decades in terms of its production bases. Till the 1980s, production of textiles and apparel was centered in the US and EU, but over a time, production of these commodities got shifted to Asian countries.
The shift was the result of an attractive low cost manufacturing advantage in these developing Asian Countries. As the production of textiles commodities was becoming unprofitable for the manufacturers in the US and EU due to rising manufacturing costs, they sought for alternative destinations for manufacture of textiles products. Asian countries with the availability of abundant and cheap man power, vast national resources and favorable economic policies were the most alterative destination for manufacturing textile products.
China has taken the maximum gain from this shift. Following China’s laberalisation of industrial policy in the 1980s, the country experienced a massive boost to industrialisation. As a result China emerged as the hub of manufacturing. Over this period it became the biggest manufacturing base for textiles in the world and has remained the largest exporter of textiles and apparel in the world, in maintaining a dominant market share of around 40 percent since 2000s.