Indian textiles and garments have a big scope in the UK market, if the much awaited Free Trade Agreement is signed between the two countries. Twelfth round of talks have been completed and the FTA looks like a distinct possibility, though no data has been fixed for formally signing the deal. Some of the Indian businesses such as those in textiles and garment segments are keen that the FTA is clinched at the earliest, since they see themselves to be as competitive as exporters from Bangladesh and argue that they are losing out due to lower duty.
“If the agreement comes through we could straightaway get a significant advantage and exports will rise by around dollar one bn in the next two years” according to a leading garment exporter.
“We are actively discussing a bilateral investment treaty business mobility to find an accommodation that works for both countries, UK Secretary of State for International Trade, KEMI BADENOCH has said, Indian Commerce and Industry Minister Piyush Goyal says that “we are discussing every issue and assured that it will be a strong and hard outcome of all these negotiations. We have to talk with sincerity ensuring balance. We are committed to come up with a winwin situation for both. It can happen at an early date”.
According to Commerce Ministry data, India’s merchandise exports to the UK reached dollar 10 bn during April 2022 – February 2023, 2.5 percent of the overall exports. Imports during the same period amounted to dollar eight bn, 1.3 percent of overall imports. In total volume terms, the UK ranked India’s 15th trading partner during the period.
Among the sticky issues include duty concession for Scotch whisky and automobiles, but these have been resolved or are being resolved. The UK side wants regulating barriers on digital services and digital enabled services to be cleared. However a data bill is currently in Parliament and could impact the FTA negotiations.
Under spirits and wines, India’s import tariff application on Scotch whisky is 150 percent. India’s whisky market is 97 percent and Scotch whisky makes up to only 2.8 percent of the market. Customs duties on assembled vehicles vary between 70 percent and 100 percent, depending on the specific category.
Domestic sales in 2022 -23 were 389 mn. India has tariff rate quota (TR4) with the UAE for gold imports. TR could place a ceiling on the number of vehicles imported from the UK at a concessional tariff rate. The import duty structure could ultimately be phased out over a specific period in the case of the UK FTA.
Negotiating an agreement with the UK seems easier even as negotiations are on with EU, though the Rishi Sunak administration seeks to address domestic issues over immigration issues with business interests. India is keen on its professionals and business workers getting access to the large English speaking market along with lower duty access for garments and leather, in return for reduced import duty on Scotch whisky.
It has been recognised that misuse of the FTA route has been on the rise to evade customs duty on imports. The issue has often been flagged by the domestic industry repeatedly and urged the government to review the existing FTAs to stop the misuse. Undue claims and benefits under FTAs have posed a threat to the domestic industry and such imports require Stringent Chocks, says Finance Minister Nirmala Sitharaman in her budget in 2022. In the 22-23 budgets, a provision was incorporated in the customs act to ensure that the FTA benefits are availed of correctly. The rules for implementing this provision were issued in January.
A new verification mechanism that came into force in September 2021 is expected to help curb the misuse. It requires importers to exercise due diligence before importing goods 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 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 need to keep a close eye.
Another thorny issue relates to intellectual property rights. India is actively engaged in discussions with the UK. However, India will not yield to demands for data exclusivity and patent term extensions as these could hinder the production of affordable life saving generic drugs within the country. This is s stance that cannot be compromised maintain official sources.
Government procurement is another area where India is open to negotiations but its policy is designed to support and foster small and medium enterprises and any compromise in this regard is not acceptable these sources said.
It has been agreed that foreign lawyers and law firms can now practice law, engage in arbitration matters and advise on international legal issues in non-litigious matters in India on the principle of reciprocity. Further, they can practice transactional and corporate work such as joint ventures, mergers and acquisitions, intellectual property matters and drafting contracts. However, they will not be allowed to appear before any tribunals or other statutory or regulatory authorities in India. If found guilty of misconduct, their registration in India will be cancelled.
The British Government has over a month ago replaced the earlier preferential tariff regime by a new Developing Countries Trading Scheme (DCTS). As a result Indian goods worth dollar 960 mn lose concessional duty access. These include, among, others some textile items, iron and steel products.
They are now on the standard preferences list, but with India negotiating an FTA with the UK, the exclusion of some of the items may be “temporary” as India is pushing for lower duty access for textiles and leather goods under the proposed investment treaty. “Several labour intensive sectors are not part of the new regime. Many of them will be part of FTA, according to industry sources.
Apart from sticky issues, India is now confronted with the latest environmental hurdle from the European Union with the UK and other developed nations expected to join the bloc in the coming years. Called the Carbon Border Adjustment Mechanism (CBAM) the levy will kick off from January 2026 and could result in an additional burden of at least 8-9 percent with the measure likely to be as high as 25-30 percent in certain other categories. The tax will negate any benefits that may accrue to India from the Free Trade Agreement under discussion.
India is contesting the levy at the World Trade Organisation as well as bilaterally as it is seem to be violating global treaties BRICs nations and other developing countries have also voiced their concern against the move with the government looking to actively counter it.
New Delhi is assessing the overall impact on the Indian Economy and the option to impose some sort of a tax on certain segments of imports including luxury goods with high carbon content. The assessment is being made by the commerce department and the finance ministry. At the same time, the environment ministry and the power ministry are also working on issues to address them domestically.
Official sources say the discussions are rather preliminary and no decision has been taken at present. If a decision is infect taken, it will target goods from developed countries which are seen to be arming with CBAM.
India has rolled out a plan for massive development of infrastructure in the coming years. So it wants to ensure that the levy does not impose any burden on the industry and businesses. If the government goes ahead with the decision, the products will be identified after examining the impact on the overall economy.
The more considered in officials circles is “unfair” and imposes a burden on developing countries. What is more the proposed CBAM does not factor in the fact that the developed countries are larger emitters and are responsible for climate change.
The discussion on CBAM comes at a time when the WTO itself is pushing to be platform for talks on trade and climate change, which the Third world countries opposing it. Formed in 1995, the WTO is conceived as a forum for debating trade issues only. The multilateral trade body will complete three declares of existence now. But all extraneous issues such as investment and environment issues are sought to be brought up for discussions mainly due to pressures from developed countries. With the result the voice of developing countries is gradually getting muted.