There are important commercial – and powerful geopolitical – reasons for a full Free Trade Agreement between the UK and India.
– Although plans to meet in person have been delayed, major opportunities lie ahead – but India needs to "make good" on commitments to open trade, protect property rights and open up competitive markets.
As Boris Johnson prepares for talks with Prime Minister Modi later this month as part of the UK’s new “Indo-Pacific tilt,” a new briefing paper from the Institute of Economic Affairs, authored by IEA Academic Fellow Shanker Singham, examines prospects for and barriers to a deeper relationship between the two nations.
The UK Prime Minister is promising an Enhanced Trade Partnership, possibly leading to a full Free Trade Agreement – and the UK may have the just right combination of offensive and defensive flexibility to be able to do this deal with India. Were it to be achieved, it could “bolster” the UK’s credentials as a free trading country.
The contours of a deal are emerging and involve key UK asks such as financial services and legal services access, as well as Scotch whisky tariff reduction, and key Indian asks such as the UK committing not to impose bans on Indian agriculture in violation of the WTO SPS agreement. Bilateral trade flows are currently worth $15.7bn in goods and $18.9bn in services, but there is “significant scope for a substantial increase,” the author notes.
And the opportunities extend far beyond narrow commercial objectives: such a deal would have a strong geopolitical dimension. India could be brought into an alignment of nations including the CPTPP members as a bulwark against the “negative impact of China’s market distortions and security policies”.
According to the briefing, obstacles to realising this bright future include India’s recent actions against the property rights of foreign investors, rule of law violations, and historic protectionism. These risks undermine its global reputation and potential. The author uses case studies, such as Devas vs Antrix, to illustrate these challenges and reiterate that FTAs are irrelevant if the rule of law and contracts are flouted, or if competitive market distortions are the order of the day.
Singham suggests that when the two leaders meet, albeit virtually, Boris Johnson could “make clear” that while the UK welcomes a deeper relationship with India, this will depend on whether the latter abides by its commitments under international treaties and respects international courts and arbitrators.
Shanker Singham, IEA Academic Fellow and author of Eastern Promise: Assessing the Future of UK-India Trade, said: “There are real opportunities for both the UK and India of a Free Trade Agreement, and these are not limited to commercial benefits only. There is a crucial geo-political dimension of aligning a group of countries including the UK, US, India and the CPTPP nations (especially Australia, New Zealand and Japan) who believe in competitive markets, property rights protection, and open trade. But India will have to choose to align itself to these core values – it is at that vital crossroads now.”