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20th April 2024 (18 Topics)

Mobility, carbon tax cloud talks on India-UK trade deal


Negotiations between India and the UK for a free trade agreement (FTA) are facing hurdles, particularly concerning issues like carbon tax, mobility rights, and duty-free access for goods. Despite being at an advanced stage, unresolved issues are delaying the signing of the agreement.

1: Dimension- Indian Requests and UK Stand
  • Carbon Tax Proposal: India has proposed various options regarding the carbon tax, ranging from a longer transition period to complete exemption. However, the UK is unlikely to accept India's request for exemption from the proposed Carbon Border Adjustment Mechanism, citing the need to reduce emissions and support domestic industries.
  • Mobility Rights: India is advocating for mobility rights for its skilled professionals, demanding more visas and the right to mobility as part of the agreement. These provisions are crucial for ensuring the movement of skilled labor between the two countries.
  • Duty-Free Access: India seeks duty-free access for certain goods in the UK market, aiming to boost exports and enhance economic cooperation. However, negotiations on this front have yet to yield concrete results.
2: Dimension- Progress and Challenges
  • Advanced Stage Talks: Despite being described as being at an advanced stage, talks have been prolonged due to unresolved issues. The negotiations, although progressing, are encountering difficulties in finding common ground on critical matters.
  • Controversial Carbon Tax: The UK's reluctance to exempt India from the carbon tax is causing contention, as India argues its status as a developing country should merit exemption. However, the UK views such an exemption as controversial and counterproductive to its emissions reduction goals.
  • Delays and Deadlines: The FTA negotiations have surpassed their initial deadline by over a year, mainly due to issues like professional visas, goods duties, and migration concerns. These delays are impeding the finalization of the agreement despite efforts from both sides to expedite the process.
3: Dimension- Recent Developments
  • Bilateral Talks: Both India and the UK have been engaged in bilateral talks, with a four-member team from India discussing key issues in London. Virtual discussions have also been held to address FTA-related matters.
  • Growth in Trade: Despite the challenges, trade between India and the UK has been growing steadily, reaching $20.36 billion in fiscal year 2023. This demonstrates the significance of a potential FTA in further enhancing bilateral trade relations.
  • Push for Conclusion: Prime Minister Narendra Modi and his British counterpart Rishi Sunak have emphasized the need for an early conclusion to the FTA, providing impetus to negotiators to resolve outstanding issues and finalize the agreement.

India-UK Trade

  • Total trade in goods and services (exports plus imports) between the UK and India was £38.1 billion in the four quarters to the end of Q3 2023, an increase of 8.7% or £3.0 billion in current prices from the four quarters to the end of Q3 2022. Of this £38.1 billion:
  • Total UK exports to India amounted to £14.9 billion in the four quarters to the end of Q3 2023 (a decrease of 4.1% or £640 million in current prices, compared to the four quarters to the end of Q3 2022);
  • Total UK imports from India amounted to £23.2 billion in the four quarters to the end of Q3 2023 (an increase of 18.8% or £3.7 billion in current prices, compared to the four quarters to the end of Q3 2022).
  • India was the UK’s 12th largest trading partner in the four quarters to the end of Q3 2023 accounting for 2.1% of total UK trade.

Examples of non-tariff barriers:

  • Process of manufacturing melted steel:
    • India mostly produces steel generated from iron ore, which in turn comes from mining.
    • On the contrary, most developed countries generate it from scrap, which results in lower carbon emissions.
    • It may result in the levy of a carbon adjustment tax on India.

Mains Practice Question

Q: "The challenges in the India-UK FTA negotiations highlight the complexities involved in balancing economic interests and environmental concerns." Discuss.


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