India and UK Forge New Trade Agreement: What It Means for Bilateral Relations
India Signs Comprehensive Economic and Trade Agreement with the UK
New Delhi: On Thursday, India finalized a free trade agreement known as the Comprehensive Economic and Trade Agreement (CETA) with the United Kingdom, marking its 16th such pact aimed at enhancing trade and investment between the two nations.
India has previously entered into similar agreements with various regions and countries, including the four-nation European bloc EFTA, Japan, South Korea, and Australia.
Since 2014, India has successfully negotiated five trade agreements with Mauritius, the UAE, Australia, EFTA, and now the UK.
Understanding Free Trade Agreements (FTAs)
A free trade agreement is a pact between two or more nations that aims to eliminate or reduce tariffs on a wide range of goods traded among them. It also seeks to lower non-tariff barriers on significant imports from partner countries and facilitate service exports and bilateral investments.
These agreements can cover anywhere from 10 to 30 different subjects. Currently, over 350 FTAs are active worldwide, with many countries having signed multiple agreements.
Advantages of FTAs
The elimination of tariffs allows for zero-duty access to partner markets, promoting the diversification and growth of export markets.
FTAs create a level playing field against competitors who may have already established similar agreements with partner nations.
They provide preferential treatment in the partner market compared to competitors from non-FTA countries.
These agreements also attract foreign investments, boosting domestic manufacturing by providing access to raw materials, intermediate goods, and capital equipment necessary for value-added production.
Additionally, FTAs contribute to long-term efficiency and consumer welfare.
India's Trade Agreements to Date
India has established trade agreements with countries such as Sri Lanka, Bhutan, Thailand, Singapore, Malaysia, South Korea, Japan, Australia, the UAE, Mauritius, the ASEAN bloc, and the EFTA countries (Iceland, Liechtenstein, Norway, and Switzerland).
Currently, India is in negotiations for trade agreements with several partners, including the US, Oman, the European Union, Peru, and Israel.
However, discussions with Canada regarding a similar agreement have been paused due to political concerns.
Benefits of Trade Agreements
These trade agreements have significantly improved market access, reduced both tariff and non-tariff barriers, strengthened strategic partnerships, and supported domestic industries through balanced trade facilitation.
Collectively, these FTAs represent a strategic pivot towards comprehensive trade agreements that aim to bolster India's domestic manufacturing, services exports, and integration into resilient global value chains.
Details of the India-UK CETA
The recent trade deal between India and the UK is considered a 'landmark' agreement, set to eliminate tariffs on labor-intensive exports such as leather, footwear, and clothing, while also reducing the cost of importing whisky and cars from the UK. The goal is to double the trade volume between the two countries from approximately $56 billion by 2030.
India plans to gradually reduce the import duty on Scotch whisky and gin from the UK from 150% to 75% initially, and then to 40% by the tenth year.
Tariffs on automotive imports will decrease from over 100% to 10% under specific quotas for both nations.
Key Indian Sectors Benefiting from Duty-Free Access in the UK
Sectors such as textiles, clothing, leather, footwear, gems and jewelry, furniture, and sports goods will gain duty-free access. Additionally, processed food items and other high-tariff products where India has a competitive advantage will also benefit.
India will also gain improved market access in sectors where it has strong export potential but previously faced moderate tariffs, including marine and animal products, vegetable oils, and chemicals.