By David Campbell Bannerman – 4 minute read
DURING the Brexit Referendum those pushing ‘Project Fear’ claimed the UK would suffer in trade deals from leaving the EU’s much larger trade block with its superior negotiating power. Well, I worked on an India-EU Free Trade Agreement report, and it has now taken 15 years of negotiation and the EU’s deal remains undone; whilst the UK has now bagged India’s biggest ever trade deal and has done so in just four years.
This is on top of the UK joining a trade block larger than the EU – the CP Trans Pacific Partnership (CPTPP) – the only European country to do so – and has established the beginnings of a UK-US Trade deal which has suddenly become vital with President Trump’s high tariff high deal making. The UK has also signed an Australian deal and is close with Gulf countries (GCC) and Switzerland.
Meanwhile, the EU’s deal with the USA – called TTIP – failed years ago and isn’t showing any signs of life yet; and the EU-Australia free trade deal was abandoned by the EU because of its own protectionism.
I watch trade developments with interest, being an MEP with 10 years on the International Trade Committee working on trade deals with Canada, Australia, New Zealand Japan and Vietnam, I was responsible for preparing the European Parliament’s Report on the once-hoped for EU-India Free Trade Agreement. I did my best for EU free trade, but found the EU was more interested in interfering in other nations’ human rights, labour rights and environmental strictures than in creating local jobs.
I met Prime Minister Modi a few times, and he was mightily amused I was born in Mumbai, (Bombay) India. As Prime Minister he represents not 67 million but 1.4 billion, though India has only just overtaken the UK economy in size it is on track to become the world’s third largest economy in three years or more.
That’s why this was always a trade deal worth having; and a huge Brexit win. For many trade deals, such as UK-Canada, the tariffs levied were comparatively low already, but India’s are astronomical. They have a high ‘luxury goods’ tariff of up to 150% and this hits our main British exports – high quality goods from Jaguar cars or Rolls Royces, to gin and Scotch whisky – where India is the world’s biggest whisky market by volume; electrical equipment, optical products, luxury knitwear from John Smedley to quality medical equipment by Smith and Nephew.
This deal sees a huge cut in car tariffs from 100% to 10% – that could be a huge boost; especially with the US market suffering from tariffs. It will increase bilateral trade by £25.5 billion by 2040 and will be worth £4.8 billion a year. The Indian market should purchase £1.4 trillion by 2035. This is real: total trade with India has already boomed from £16.6 billion to £40 billion in a decade.
India has agreed to an immediate cut in half on whisky tariffs – from 150% to 75% then to 40% after 10 years. A British minister told me if whisky tariffs were substantially cut, Scotland would have to double whisky production – what an opportunity and one in the eye for SNP’s dreary anti-Brexit mantra. Ironically I first developed by love for Glenmorangie whisky variants in the Taj Mahal Hotel Mumbai which has an excellent choice of whiskies.
The deal also boosts opportunities for professional and financial services, digital and technology, and for Indian government contracts worth £38 billion through 40,000 tenders a year in areas such as transport and energy, with a special status that avoids barriers set under ‘Made in India’ policies.
I think the Indian Government has embraced free trade in principle but has natural protectionist leanings in reality: as a still developing economy its leaders fear India’s economy being broken apart by big European manufacturers. In contrast, the UK has more synergy, with more reliance on services and high-end manufactured goods. But the threat from Trump’s USA must have focused their minds; and India could well be supplanting China now on important global products such as iPhones.
Trade deals are not just about exports by us, they are about imports for us as consumers too. This deal means cheaper shoes, clothes, some food and jewellery for UK consumers.
There are of course big opportunities in more cooperation over investment, pharmaceuticals (where UK and India are major players). Then, with the geopolitics of India regarding Russia, Iran and the growing power of China, there could be opportunities in government procurement for common defence equipment, such as our AUKUS deal with Australia provides.
For once this Free Trade deal extends more into services. We are all used to Indian call centres, but India has a high graduate count and are great entrepreneurs – 40% of companies in California’s Silicon Valley were established by Indians. This raised the tricky issue of ‘Mode 4’ of the World Trade Organisation ‘General Agreement on Trade in Services’; referring to the ability of temporary workers ‘entering the territory of another to supply a service’. This might be to establish a branch or instal a product to extend a company’s reach.
But Mode 4 is controversial because it is misunderstood as a way round Immigration controls, especially when Indians now top visas granted by the UK. But Mode 4 isn’t immigration – it is for a limited duration, such as 6 months – and generally for individuals, not whole families. I see this as strengthening the British economy not taking jobs away.
What we see in this deal is not an increase in such visas, which is reassuring, but an exemption for paying UK NICs whilst working in the UK. This is less controversial than is being claimed – as it is an arrangement to avoid double taxation for temporary British and Indian workers – but it does open many questions on unfair competitive advantage and of hypocrisy just as UK workers are being hit hard by increased Labour NICs. Reassurance on these issues is therefore required.
All in all, a UK-India free trade deal would offer the UK’s exporters and consumers real opportunities and major reductions in damaging barriers, such as those 150% tariffs. The UK trade focus is moving Eastwards into the world’s biggest economic areas – not the EU, but the free acting Comprehensive and Progressive Trans Pacific Partnership (CPTPP) – forecast to account for 9/10s of the world’s future economic growth.
This is a case of ‘Go East Young Person!’
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David Campbell Bannerman is a former Conservative MEP and was EU Parliamentary Standing Reporter for the EU-India Free Trade Agreement negotiations.
Photo of Bangalore by seksun via Adobe Stock