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Post-Brexit India-UK relation

  Jun 02, 2020

Post-Brexit India-UK relation

What are the respective motives for India-UK trade deal post-Brexit?

The UK is among India’s main trading partners from the EU bloc. Trade totalled €13.6 billion in 2018, accounting for 17% of India’s overall trade with the EU. Moreover, trade between India and the UK increased at an average rate of 8.8% a year between 2002 and 2018.

Machinery and transport equipment constitute 40% of India’s exports, and accounts for nearly 20% of total UK’s trade with India. The UK’s exports of alcoholic beverages also registered a significant increase to €162m in 2018.

What attracts UK to India?

From an economic perspective, India is an attractive trade and investment partner, being a $3 trillion-dollar economy in 2019. With the loss of EU, India’s attraction is more to sustain economic and trade growth. 

UK is already demonstrating its interest as in September 2019 it eased immigration norms to allow international students, including those from India to work after completion of studies. It is by way of a new two-year, post-study work visa regime. It is for giving them enough time to look for jobs.

The move is going to benefit Indian students in a big way as 32 per cent of the total Tier 2 (Work Visa) in the UK is taken by Indians. There is no restriction on the type or level of work they can do.

Why should India be interested?

  • As UK leaves EU, it is likely to need and so be more conciliatory to large economies like India. 
  • A trade deal with the UK will help our exports. 
  • India’s geopolitical stature will increase and 
  • It could help strengthen India’s Commonwealth ties.

What are the difficult issues in the relationship?

The UK and India have to agree on reducing tariffs on their respective imports. Visa numbers and intellectual property would also be issues for the UK, as they were with the EU, and could prove contentious. 

How do recent global developments impact the prospects?

Positively. Recent political developments, however—including Brexit, eurozone uncertainty, sluggish global growth rates and trade tensions from the Trump administration’s pursuit of a protectionist agenda—all have serious implications for future trade talks. These could make the partners to review their red lines and return to the negotiating table.

What is EEA? What benefits does it offer? 

The European Economic Area (EEA) is an international agreement which enables the extension of the European Union (EU)'s single market to non-EU member parties. The EEA links the European Union member states and three European Free Trade Association states (Iceland, Liechtenstein, and Norway) into an internal market governed by the same basic rules. These rules aim to enable free movement of labour, goods, services, and capital within the European Single Market, including the freedom to choose residence in any country within this area. 

The EEA was established in 1994. The contracting parties are the European Union (EU) and three EFTA member states as mentioned above.

What is the status of the India-EU Bilateral Trade and Investment Agreement (BTIA)?

The European Union and India have been negotiating a free trade agreement (FTA)-Bilateral Trade and Investment Agreement (BTIA), since 2007. Despite growing trade between the EU and India, talks stalled in 2013 after 16 rounds, only resuming in 2018. 

The EU is India’s largest trading partner, accounting for around 13% of India’s total trade in goods in 2017. 

India is the EU’s ninth biggest trade partner. 

Services are also an important component of EU-India trade. Indian services exports to the EU were €16.6 billion in 2018, while imports were €17.1 billion. 

The sector has also attracted foreign direct investment from the EU.

What issues are holding back progress in BTIA?

Talks broke down in 2013 on the demands for tariff reductions and market access, as well as the inclusion of social, environmental and human rights clauses would be impossible. Discussions resumed in 2018.

What does EU want?

EU wants detailed provisions for investor-state dispute settlement (ISDS) after India cancelled 20 bilateral investment protection treaties with individual EU countries in 2016. The ISDS demand is not acceptable to India and current regulations require foreign investors to resolve their problems in Indian courts for a period of five years before pursuing a claim under international law.

The EU is adamant about negotiating a stronger intellectual property regime and a sustainable development chapter with social and environmental clauses, which India is unwilling to include in the trade agreement.

What does India want?

India wants more visas to be granted to its skilled workers in the services industry. But, at a time when all EU member states are grappling with a “migration crisis” any loosening of visa rules is highly unlikely. 

India has also been demanding status as a “data-secure nation”, which will reduce compliance costs for Indian software providers. But, given EU concerns over regulatory norms and data-privacy standards it is unlikely that the EU will agree to this demand.