- Darsini Davey
- BBC News Global Trade Correspondent
image source,PA Media
UK PM heads to India for two-day visit, with trade and security issues topping the agenda
British Prime Minister Boris Johnson said he hopes to reach a free trade deal with India by the end of the year. However, negotiating the details of the compromise is not an easy task.
Whisky consumer
India is the world‘s largest consumer of whisky, and the prospect of a free trade deal will naturally excite the Scottish distillery industry. Because now every bottle of Scotch whisky sold in India is levied a 150% import duty.
Most of the whisky that Indians drink today is made in India. Scotch whisky accounts for only 2% of the Indian market.
The Scotch Whisky Association said that if India did not impose import duties, whisky exports could increase by £1 billion over the next five years.
Of course, apart from whisky, India has other trade barriers like tariffs, quotas and investment restrictions etc. For example, imported foreign cars are subject to a 100% tariff.
For this reason, the UK is currently not exporting as much to India as it is to Belgium, despite India’s population being over a hundred times that of Belgium.
Indian Pharma
image source,Newscast
If the UK reaches a free trade agreement with India, the UK is expected to increase exports to India, especially Scotch whisky
But the UK is about to start a third round of trade talks with India, which could be reversed if a deal is reached by the end of the year. The UK trade secretary, Anne-Marie Trevelyan, said the deal would allow the UK to double its trade with India to £28bn by 2035.
Both Australia and the United Arab Emirates have recently signed trade agreements with India, so there are high hopes that a UK-India agreement will be reached.
But both London and Derry have their own wish lists, and there are many hurdles to overcome in negotiations. Britain wants access to India’s manufacturing and services sectors, where India has traditionally resisted foreign investment to protect domestic industry and jobs.
In addition, Indian Prime Minister Narendra Modi may review the whisky distilling industry in India and is not willing to lift the tariff on whisky.
working visa
If India does not want to lower the above-mentioned trade barriers, it may ask the UK to make corresponding concessions in exchange, such as requiring the UK to allow Indian medicines to enter the British market. The UK may also be asked to ease the issuance of work visas to India.
Under the post-Brexit points immigration system, 60,000 Indians were granted skilled worker visas last year, accounting for two-thirds of the total number of skilled worker visas issued in the UK. But Amitendu Palit, an academic who used to work in India’s Ministry of Finance, believes that the UK needs to relax its policy further and allow more Indian professionals to work in the UK for longer periods of time.
British Prime Minister Johnson himself has said that the shortage of skilled labor in the UK can be made up by issuing visas. However, immigration has been a sensitive issue in the UK after the 2016 Brexit referendum.
long-term meaning
image source,Getty Images
India has a large population and is expected to become the world‘s third-largest economy, so a trade deal with India has long-term appeal
Is it worth the effort? After all, according to the estimates of the British government, if a trade agreement with India is reached, India’s trade barriers will be largely eliminated, and the UK’s GDP will only increase by 0.2% in the next 10 years.
Given Modi’s recent stance on Putin-led Russia’s invasion of Ukraine, one might question whether a trade deal should be negotiated.
For the UK, however, the appeal is future potential. India could become the world‘s third-largest economy by 2050, with an expanding middle class and spending power.
In the post-Brexit Britain, especially when there is still no free trade agreement with the United States, reaching a free trade agreement with India will have long-term significance for the United Kingdom.
The first phase of a trade agreement negotiation is usually easier, and the difficulty is usually left to the end. So, it may take a while to learn the full truth about the challenge.
Economists say a transitional deal could be reached by the end of the year if both sides are willing to back down, with a comprehensive deal by Christmas looking too hopeful.
Possibly aware of the thorny issues facing trade deal negotiations, the Scotch Whisky Association wants to exempt whisky tariffs before a comprehensive deal is reached, urging a so-called “early harvest deal”.
It may also be tempting to grab a few good news stories worth a toast and the behind-the-scenes negotiators to keep working on the details in tricky areas.