On 6 September 2022, the House of Lords is due to debate the report of the House of Lords International Agreements Committee, ‘UK–India free trade agreement: Scrutiny of the government’s negotiating objectives’ (22 July 2022).

1. Background

The UK’s withdrawal from the EU means that it now has an independent trade policy, allowing it to ratify and implement new trade agreements with other countries. Since leaving the EU, the UK has:

In May 2021, the UK prime minister, Boris Johnson, and the prime minister of India, Narendra Modi, announced an “enhanced trade partnership” as the first stage in negotiating a comprehensive free trade agreement. Between May and August 2021, the government ran a public consultation in preparation for the trade negotiations with India.

The UK government published its negotiating objectives for the UK-India trade agreement in January 2022, and negotiations with India commenced the same month. In a letter to the House of Lords International Agreements Committee in June 2022, the then minister for investment at the Department for International Trade, Lord Grimstone of Boscobel, stated that the government aimed to conclude the “majority of talks by end of October [2022]”.

2. Government’s negotiating objectives

The negotiating objectives stated that India was an “important partner” for the UK and a trade deal with the country provided an opportunity to “deepen economic and strategic ties”. The document stated that India is estimated to be the world’s third largest economy by 2050 and a trade agreement could allow UK and Indian businesses to “benefit from lower trade costs, boosting economic activity in both countries’ areas of competitive strength”. The document stated that a trade deal with India supported the government’s strategy of “tilting towards the Indo-Pacific and championing free trade”.

The negotiating objectives stated that the UK’s economic links with India were already significant, amounting to £23.3bn in 2019. The government estimated that a trade deal could increase UK GDP by “around £3.3bn in 2035” (in 2019 prices), equivalent to an increase in UK GDP of 0.12% to 0.22% by 2035, depending on the depth of the negotiated outcome.

In terms of the impact on different sectors, the document stated that the largest increases in economic activity could be in the UK transport equipment, manufacture of electrical equipment and motor vehicle sectors. The document stated that “certain agricultural and food sectors, as well as the textile industry, could face an increase in import competition”. However, it stated that “consumers could also benefit from more choice and lower prices”.

The government claimed the key benefits of a trade deal with India include:

  • Reduced barriers to trade in goods.
  • Increased opportunities for UK services and investment.
  • Supporting innovation and trade in the digital era.
  • More jobs for UK workers.
  • Creating opportunities for businesses across the UK, including small- and medium-sized enterprises.

The government said that any deal with India “must work for UK consumers, producers, and businesses”. It committed to “upholding our high environmental, labour, food safety and animal welfare standards”. The document stated that the “NHS, its services, and the cost of medicines are not on the table” in the negotiations.

3. House of Lords International Agreements Committee report

The House of Lords International Agreements Committee published its report on the government’s negotiating objectives in July 2022. The committee welcomed the commencement of talks with India, stating that the projected economic benefits were greater than those from the trade agreements with Australia, New Zealand, and Japan.

However, the report criticised the negotiating objectives for being “very general, high level” and at times “overly ambitious”. The committee said the objectives provided “no clue as to the government’s negotiating priorities” or, in most cases, its red lines.

The report stated that India has a history of agreeing “thin FTAs [free trade agreements]”, has historically protectionist policies, and different regulatory approaches to the UK. The committee said India has a “notoriously difficult” business environment:

Corruption levels are high, business permits are difficult to obtain, tax and customs processes are complex, levels of contract enforcement are low, and IP [intellectual property] protections are limited.

The committee criticised the negotiating objectives for including “only limited information on the challenges of doing business in India and how these may be overcome”. It said that overcoming such barriers would, in many cases, require changes to India’s domestic legislation, which “could be a lengthy process”.

In that context, the committee questioned whether it was achievable for a comprehensive trade agreement to be completed by the “ambitious but arbitrary” October 2022 deadline the government had set for itself. The committee said the government “must not accept a poor agreement simply to meet a deadline”. It said that an interim deal with India could “lock in some benefits”, but it could also reduce the chances of securing a comprehensive deal if the UK “makes too many early concessions”.

On the content of the trade deal, the committee accepted that UK consumers may benefit from Indian imports which provided “cheaper goods and greater choice”, but it said the government “should not agree regulatory equivalence that would result in reduced standards or lower consumer protection”.

Given that an objective of the trade deal was to encourage UK investment in India, the committee criticised the negotiating objectives for not including investor-state dispute settlement provisions, or “an independent and enforceable alternative”.

The report argued that the government had not provided enough information on the importance it would give to “human, environmental and other rights and protections”. On the issue of climate change and the environment, the committee said there was an opportunity to use the trade agreement to co‑operate on mitigating carbon emissions and to support the decarbonisation of India’s economy, but it regretted that “this is not reflected in the negotiating objectives”.

The committee recommended that the government should publish an “overarching trade policy” showing how trade fits in with the government’s “foreign, defence, environmental and domestic objectives”. The report stated that India had not supported the international sanctions regime against Russia in response to the war in Ukraine and had in fact increased its trade with the country. The committee cited this as an example of a lack of clarity about whether the UK planned to “factor this into our trade relations with India”.

At the time of writing, the government had not yet published a response to the committee’s report.

4. External commentary

In January 2022, the National Farmers’ Union (NFU) said a trade deal with India could offer “huge opportunities for UK farmers to export more quality, UK food abroad”. However, the NFU said it was vital that any deal maintained the principles of “high animal welfare and environmental protection and ensure these are upheld for imports too”.

In May 2022, the UK Confederation of British Industry and its counterpart the Confederation of Indian Industry welcomed the UK-India trade negotiations. The organisations said they were forming a joint taskforce to provide “a critical forum for discussion to ensure an FTA works to the benefit of businesses in both countries”. They said it was vital that the final deal reduced barriers to trade, cut tariffs, and supported firms to increase exports.

On 4 August 2022, the environmental campaign group Pesticide Action Network (PAN) published a report which claimed that a trade deal with India “threatens to increase the amount of pesticides in food sold on UK shelves”. The report stated:

Indian agribusiness is able to operate more cheaply using pesticides that are banned in the UK to protect human health or the environment. This gives them a competitive advantage over UK producers.

PAN also raised concerns about the UK’s capacity to undertake border controls on foodstuffs entering the country. It said the “UK pesticide residue testing regime does not appear to have experienced a major rise in investment nor staff capacity since EU exit”.

However, the government has said the claims on pesticides are overstated. Farmers Weekly reported that a spokesperson from the Department for International Trade said:

We have strict statutory limits for pesticide residue levels on imported food and a robust programme of monitoring […] An FTA with India won’t change this—products which don’t meet our requirements won’t be permitted to enter the UK market.

On 11 August 2022, eleven trade bodies (including the Society of Motor Manufacturers and Traders, Tech UK, the Chemical Industries Association, and the City of London Corporation) wrote an open letter urging the government to “hold out for a commercially meaningful and comprehensive deal [with India], even if doing so means that the self-imposed deadline of Diwali is not met”. The letter said that it was the “content of the deal which matters for UK businesses, not speed of negotiation”.

5. Read more

Cover image: Sea freight photo created by tawatchai07 from Freepik.