India, UK reach FTA breakthrough on mobility of persons, electric vehicles

Two people aware of the development said that in the proposed terms being formalized, the UK may allow Indian professionals to work there under certain conditions. In exchange, India may allow the import of premium-category electric vehicles, subject to a fixed cap.

The Union commerce ministry has placed the finalisation of the FTA at the top of its 100-day post-poll agenda, according to the first person.

“So far, 13 rounds of negotiations have been held. The ongoing discussions, which began on 10 January, mark the 14th round of negotiations,” the second person mentioned above said on condition of anonymity. “Chapter-wise textual negotiations are nearly closed, and the schedules for goods and services are at an advanced stage. Mobility is part of the services-level discussions.”

The intensity of the negotiation has picked up in recent months, with the UK team visiting New Delhi in March, followed by the Indian delegation’s visit to London in both April and May. Additional visits are planned in the coming months.

If negotiations proceed smoothly, the FTA is expected to be signed before the UK elections next January.

Queries emailed on Friday to commerce secretary Sunil Barthwal and spokesperson of THE commerce ministry remained unanswered till press time.

Meanwhile, in response to an emailed query, the spokesperson for UK’s department for business and trade said, “We have always been clear we will only sign a deal that is fair, balanced and ultimately in the best interests of the British people and the economy.”

“The UK and India continue to work towards an ambitious trade deal that works for both countries,” the spokesperson said.

The sticking clauses

According to the people cited above, the UK has agreed in principle to allow work visas for Indian professionals to reside for a fixed period (which is yet undecided), with the option for renewal dependent on meeting mutually agreed-upon conditions. However, the provision for accompanying spouses may not be included in the agreement.

The work visas being negotiated would benefit all professionals visiting the UK for work as per the agreed-upon provisions of the FTA, unlike, say, IT services companies’ employees who obtain visas for a certain period only to work on a certain project.

In return, India may allow the import of a fixed number of premium electric vehicles annually on reduced duties, subject to the fulfilment of terms and conditions agreed upon by both nations. The cap may be adjusted based on compliance with these terms. The numbers being discussed are tentatively in the range of 2,000-2,500 EVs.

The UK is demanding significant cuts in Indian tariffs for products such as Scotch whisky, which currently faces a hefty 150% duty, as well as for electric vehicles and chocolates. Regarding the issue of Scotch whisky, India has offered a deal like the one it has with Australia. Under the India-Australia FTA, the duty on Australian wines has been reduced from 150% to up to 75% over a period of 10 years.

Currently, import duties for Scotch whisky from the UK—both bottled and bulk—stand at 150% above the minimum import price (MIP). It could now be reduced to 100% for bottled Scotch, which could be further reduced to 75% over a 10-year period, the people cited above said.

Then, India’s request for exemption from the proposed carbon tax remains unresolved. The UK has proposed to introduce a levy for imported goods by 2027 that have lower or no carbon price to support its decarbonisation drive. This tax would be on similar lines to the proposed carbon border adjustment mechanism (CBAM) by the European Union.

As of now, the UK is not prepared to grant India a free pass regarding this tax, which is part of broader efforts to combat climate change by imposing costs on carbon emissions, according to the people aware of the matter.

The trade situation

Merchandise trade between India and the UK has grown from $10.45 billion in FY22 to $11.46 billion in FY23 and it increased further by 13.26% to $12.98 billion in FY24.

“An FTA between the two countries is expected to boost trade volumes in both goods and services,” said Ajay Sahai, DG, FIEO (Federation of Indian Export Organisations). “Given that India exports IT and business services to the UK, the FTA will facilitate the seamless movement of skilled professionals, further enhancing bilateral trade relations.”

However, the general feeling is that an India-UK FTA would benefit India more from a services standpoint than goods.

“The FTA with the UK is anticipated to minimally impact the growth of goods exports, given that more than half of Indian products already enter the UK with low or no tariffs,” said Ajay Srivastava, the founder of Global Trade Research Initiative (GTRI). “The average tariff on goods imported from India into the UK stands at 4.2%.”

“Reducing duties for Indian products worth $6 billion won’t provide any additional benefit, as they already enter the UK duty-free, even without the FTA. These products include petroleum products, medicines, diamonds, machine parts, airplanes, and wooden furniture,” Srivastava said.

On the other hand, there are potential gains from reducing duties for Indian exports valued at $5 billion, including textiles, apparel (shirts, trousers, women’s dresses, bed linen), footwear, carpets, cars, marine products, grapes, and mangoes, he said.

An Indian team led by chief negotiator L. Satya Srinivas, additional secretary, ministry of commerce, visited the UK on 16 April. During the four-day visit, various issues were discussed extensively, including the proposed carbon tax, India’s demand for business mobility, duty-free access for certain goods, etc.

Thereafter, another team led by deputy chief negotiator Darpan Jain, joint secretary, ministry of commerce, visited London in May to iron out the differences. The team returned on 15 May and is “confident” of resolving most of the sticky issues by offering a workable solution that suits both nations, the first among the two persons mentioned above said.

The FTA’s journey has been fraught with delays, now exceeding a year past its initial deadline of mid 2024, largely due to issues like professional visas, duties on various goods, and migration concerns—a sensitive subject in the UK since Brexit.