Trump brandishes tariffs, but India and UK are back talking trade

India and the UK returned to free trade negotiations on Monday after a year's gap, offering a glimmer of optimism in a world witnessing a surge in protectionism. According to commerce minister Piyush Goyal, the proposed free trade agreement (FTA) may raise India-UK trade by as much as threefold in the next 10 years, at a time when rising tariff walls threaten to put a dampener on free movement of goods and services.

Alongside the FTA, discussions are also progressing on a Bilateral Investment Treaty (BIT) and a Double Taxation Avoidance Agreement, the two sides confirmed, adding all three aim to provide a stable regulatory and investment climate.

"This will be a path-breaking free trade agreement," Goyal said at a press conference with his British counterpart Jonathan Reynolds, adding it could boost merchandise trade with Britain two to three times in a decade. India's trade with the UK grew from $17.5 billion in FY22 to $20.36 billion in FY23 and $21.34 billion in FY24. The UK is India's 11th largest trade partner, with the two sharing long-standing cultural and social links.

The ability to stitch together bilateral deals is key in an era where multilateralism has suffered. The US forced Canada and Mexico to renegotiate their free trade pact during Donald Trump's first term as president, and has recently threatened stiff tariffs on both neighbours. Meanwhile, India in 2022 signed trade deals with the UAE and Australia, and a pact last year with the European Free Trade Association of Switzerland, Norway, Iceland and Liechtenstein.

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On tariffs, Reynolds noted that talks were intended to address such trade barriers. Goyal, in turn, explained that many of India's tariffs were in place to protect domestic industries from unfair trade practices such as dumping by non-market economies. "We have greater flexibility to significantly reduce tariffs and make business more competitive between the two countries, and the FTA is intended to balance tariffs as part of a fair trade agreement with the UK," Goyal said.

FTAs promote economic growth by reducing trade barriers such as tariffs, making goods cheaper and increasing the variety of products available. They also foster stronger relationships between countries, potentially leading to increased foreign investment and technological exchange.

Talks with the UK had kicked off in 2022, but were suspended in May 2024, before the UK went to polls in July. The negotiations have taken much longer than the original Diwali 2022 deadline set by the then UK prime minister Boris Johnson. This time, the two sides were guarded on setting a timeline for concluding the FTA, underlining that while speed was important, the quality of the agreement took precedence.

Goyal said the talks were resuming in a friendly atmosphere, and highlighted the complementary nature of the two economies. The goal is to finalize a deal that is forward-looking, transparent, ambitious, equitable, and balanced, he said. Reynolds, on his part, called India a vital partner for the UK and stressed the shared commitment to driving economic growth through trade and investment. He assured that the UK government, including prime minister Keir Starmer and key cabinet ministers, fully supported the negotiations, describing them as a top priority.

Talks will cover the FTA, a Bilateral Investment Treaty (BIT), as well as social security, and conclude simultaneously, Goyal said. While trade and investment have been the primary focus, social security has emerged as a key concern, particularly for Indian professionals working in the UK. India has been pushing for an agreement to prevent double contributions by its workers to social security schemes in both countries.

Addressing speculation about immigration being part of the negotiations, Goyal clarified that India had never included immigration in its trade agreements.

"There is a clear distinction between immigration and business mobility, as provisions for business and work visas are tied to trade and investment, not immigration policies,” said Goyal.

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Reynolds supported this view, stating the UK viewed business mobility separately from immigration, and that both nations sought to facilitate business and investment flows through the FTA.

Industry expectation

The Federation of Indian Export Organizations (FIEO) welcomed the resumption of talks, emphasizing the potential benefits of a well-negotiated deal.

"We welcome the restart of India-UK FTA talks. A well-negotiated deal can enhance market access, reduce tariffs, and boost exports across key sectors like textiles, footwear, pharmaceuticals, and IT," said Ajay Sahai, Director General & CEO of FIEO. “The agreement should ensure fair rules of origin, mutual recognition of standards, and favourable visa policies for professionals. Addressing non-tariff barriers is crucial for maximising benefits," said Sahai.

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Ajay Srivastava, founder of policy think tank Global Trade Research Initiative (GTRI), emphasized the need for both sides to avoid reopening settled issues and urged India to address concerns over the UK’s Carbon Border Adjustment Mechanism (CBAM).

“Under the proposed FTA, UK goods could enter India tariff-free starting January 2026, while Indian exports such as steel and aluminium might face CBAM-related charges. India should work to resolve this imbalance through the FTA discussions," Srivastava said, stressing the need for fair trade terms to ensure Indian exporters are not disadvantaged.

Goyal reiterated that trade agreements must be robust and sustainable, keeping long-term economic benefits in mind. Reynolds added that while there was a sense of urgency, the primary focus remained on achieving a high-quality deal that would benefit businesses and consumers in both countries.

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Earlier Mint had reported on 21 February that India is likely to soften its demand on workers' mobility considering reservations in the new British government led by prime minister Keir Starmer.

Mobility for professionals has been a sticking point in previous rounds of discussions under former UK Prime Minister Rishi Sunak. India is also willing to negotiate its steep tariffs on Scotch whisky.