India-UK FTA talks likely to restart in January amid complex issues

Issues like labour, environment remain tricky as talks may begin in Jan

India and the UK could resume free trade agreement (FTA) negotiations as early as January, although reaching a consensus on issues such as modern trade topics — labour and environment — and a social security pact remains tricky.

 

While the FTA talks will “resume discussions based on the progress achieved previously”, some agreements made by the previous government under Rishi Sunak may not resonate with the new British government, sources familiar with the matter told Business Standard. 

For instance, during the FTA talks, the Labour Party government in Britain is likely to seek commitments on modern trade issues like labour and the environment. India, on the other hand, has been pushing hard for these chapters to be “best endeavour” in nature, avoiding binding commitments. 

The new government led by Keir Starmer is also in favour of the rollout of the carbon border tax, which India has vehemently opposed, instead bargaining for relief measures as part of the FTA. 

“The UK announced the rollout of the carbon border tax under Sunak. It may be equally or more difficult for India to secure relief under the current government,” one of the sources said. 

Biswajit Dhar, a distinguished professor at the Council for Social Development, said that issues like labour and the environment rank high on the UK’s trade agenda. 

“In Western Europe, there has been a trend towards enforcing labour standards. This began when the UK was part of the European Union. There is also a move towards developing due diligence laws for supply chains, which countries like Germany and France have already initiated.  

This is part of the broader agenda of developed nations. Even the Indo-Pacific Economic Framework for Prosperity is moving in this direction,” Dhar said. 

Developed countries, unable to implement these measures multilaterally, are advancing them through bilateral FTAs, he added.

Last week, India and the UK announced that FTA talks will resume next year, following a pause due to general elections in both countries. The announcement came after a meeting between Prime Minister Narendra Modi and his British counterpart Keir Starmer on the sidelines of the Group of Twenty summit in Brazil. This was the first meeting between the two leaders. 

India and the UK have been negotiating a trade agreement since January 2022, with 14 rounds of negotiations held so far.  Despite progress, a proposed social security agreement (SSA) — a key demand for India — remains a sticking point in the trade deal. 

“A social security pact will continue to be a tough call for the new UK government, as it is a politically sensitive matter,” one source said. 

SSAs are bilateral agreements designed to protect the interests of skilled, professional cross-border workers by ensuring social security contributions are not paid in both countries or doubly charged. 

Another contentious issue has been the proposed bilateral investment treaty (BIT), particularly regarding dispute resolution.  “While the previous UK government wanted to finalise both the FTA and BIT simultaneously, it remains to be seen if the current administration prioritises this in the same way,” the source added.

 

Other areas of dispute include India’s demands in the services sector, such as the movement of skilled professionals, and the UK’s requests for reduced tariffs on whisky and automobiles. The UK is also pushing for greater access to India’s legal, architecture, and financial services sectors. 

Speed bumps ahead 

Some matters agreed upon by the erstwhile Rishi Sunak  government may not resonate with the new government in Britain 

The Labour Party government in the UK may expect commitment on modern trade issues like labour and environment  The Keir Starmer-led govt is in favour of the rollout of the Carbon Border Tax, which India has been vehemently opposing

During April-September, India’s export basket to the UK was led by mineral fuels, machinery, precious stones, pharmaceuticals, apparel, iron and steel, among others