Brexit trade pact raises chances of India-UK FTA

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December 26, 2020 7:15 AM

In fact, the Federation of Indian Export Organisations (FIEO) has now urged the government to sign a memorandum of understanding for an FTA with Britain when British Prime Minister Boris Johnson visits India next month, its president Sharad Kumar Saraf told FE.

Ever since the Brexit decision in June 2016, both India and the UK have been keen on initiating dialogues on a potential FTA, which couldn’t be held without a formal divorce deal between London and Brussels. (Representative image)

A landmark post-Brexit trade deal between the EU and the UK brightens the prospects of a free trade agreement (FTA) between New Delhi and London, exporters told FE.

At the same time, India’s planned FTA with the EU, excluding Britain, loses some of its sheen. This will likely prompt India to recalibrate its offers to the 27-member bloc for tariff reductions, factoring in the changed realities, a source said. For instance, Britain made up for 26% of India’s apparel exports in FY20 to the EU, which was the largest export destination for Indian apparel with a 37% share.

Ever since the Brexit decision in June 2016, both India and the UK have been keen on initiating dialogues on a potential FTA, which couldn’t be held without a formal divorce deal between London and Brussels.

The UK accounted for 16% of India’s $53.7-billion exports to the EU in FY20. The EU, including Britain, was the largest export destination for India last fiscal, with a 17% share in the country’s overall outbound shipments. Apart from garments, India ships out gem and jewellery, pharma products, footwear and organic chemicals, among others, to the UK in large volumes.

In fact, the Federation of Indian Export Organisations (FIEO) has now urged the government to sign a memorandum of understanding for an FTA with Britain when British Prime Minister Boris Johnson visits India next month, its president Sharad Kumar Saraf told FE.

“Any India-UK trade talks won’t have the same level of complication that exists between India and the EU. We can clinch an FTA with the UK without much hiccups,” Saraf said. Having pulled out of the China-dominated RCEP deal, India has been seeking to expedite trade talks with large markets. Against this backdrop, Brexit augurs well for New Delhi, analysts said.

After 16 rounds of talks between 2007 and 2013, negotiations for an India-EU FTA were stuck due to differences, as the bloc insisted that India cut import duties on automobiles and wine (which would benefit mainly Germany and France), among others. The UK is unlikely to be much too rigid over these issues, analysts reckon.

While details of Thursday’s deal between the UK and the EU are being studied by trade analysts to gauge the precise impact on India, exporters say the agreement lends more clarity about the way forward, although fresh uncertainties may crop up.

Mahesh Desai, chairman of engineering exporters’ body EEPC, said: “Initially (after the formal Brexit deal), there could be some heightened trade issues like dual technical certification as also perhaps different rules of origin (for Indian exporters). But if India quickly seals a trade deal with the UK, with tariff preferences like the EU GSP (generalised system of preference) or a better tariff preferences schedule for Indian products, our exports may benefit.”

Analysts believe that foreign direct investments (FDI) inflows into India from either the EU or the UK won’t be affected, as such inflows depend more on the prospect of returns and the strength of the economy than on other factors. The UK is India’s sixth largest source of FDI. It accounted for FDI (in equity) worth close to $30 billion between April 2000 and September 2020, representing 6% of such inflows into India during this period.

Former chairman of the Apparel Export Promotion Council, Ashok G Rajani, had earlier said India enjoyed a 20% tariff preference in the EU under its GSP programme. It is to be seen how this gets impacted after Brexit, for exports to UK. It would also be interesting to see how the competition unfolds in the EU, with countries with zero duty benefit in the EU (like Bangladesh) also losing out with Britain’s exit.

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