For the United Kingdom, trade talks with India are not completely comfortable.
However, with no progress on a free trade agreement with the United States and none expected in the near future, the formal initiation of trade discussions with India, announced in New Delhi on Thursday, is the most significant negotiation the UK government will undertake this year.
India is on track to become the world’s third largest economy by 2050, and the government expects UK-India commerce to double within the next decade.
Trade Secretary Anne-Marie Trevelyan calls the prospect of a free trade deal with India “a golden opportunity” and there are certainly huge commercial prizes up for grabs.
George Riddell, EY’s director of trade strategy, calls the decision to launch trade negotiations with India a “positive step” that is already generating “genuine enthusiasm” in the business sector.
India, on the other hand, has always been hesitant to liberalize because it has so many vested and vulnerable interests to defend.
The European Union has been attempting to establish a genuine agreement with India for years but has had little luck. For a decade, Australia has been working on a deal as well.
Particularly problematic areas include government procurement policies and service trade.
“The current terms under which services providers are trading between the UK and India date from 1995, and don’t take into account any of the technological developments that have taken place over the past twenty-five years,” Riddell points out.
And India is usually adamant about getting visas for Indian professionals and students who want to work or study in other countries.
Both parties are now eager to complete a UK-India agreement, according to British officials, and they hope to do so before the end of the year. However, it is a lengthy timeline.
So, why try to reach an agreement with India when history indicates it will be difficult?
It’s partly due to the country’s size and population, and partly due to the fact that, well, where else?
China has been declared off-limits as far as trade agreements are concerned. The United States has said no. Other large growing economies, such as Brazil, are extremely tough to deal with. And a deal with the EU has already been reached, albeit on worse trading terms than the UK enjoyed before leaving the EU.
Smaller agreements, such as those already reached with Australia and another in principle with New Zealand in 2021, are possible. Those accords, according to the administration, are key milestones toward membership in the CPTPP, the world’s most dynamic trade agreement.
However, the unsettling reality is that, following its exit from the EU, the UK is attempting to create its trade policy from the ground up at a time when, roughly speaking, many governments are focused on domestic economics.
“Some of the momentum has gone out of reaching trade agreements generally,” says Emily Jones, associate professor in public policy at the Blavatnik School of Government in Oxford.
It doesn’t help that international agreements aren’t gaining traction at the World Trade Organization. And, under both Donald Trump and Joe Biden, the US has prioritized the protection of American workers at home.
With the Office for Budget Responsibility forecasting that the UK economy will shrink by approximately 4% in the long run as a result of less commerce outside the EU single market, authorities are under pressure to make up ground elsewhere.
“The civil servants the UK has working on trade are really good,” Ms Jones says, “but I think politics is driving the trade agenda.”
“The need to show success is being given a higher priority than the intrinsic economic merits.”
(Adapted from BBC.com)