Signing FTA with India not an immediate priority: U.K.

Prelims level : Bilateral Mains level : GS – II / III
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Britain has acknowledged that securing a Free Trade Agreement with India will not be its immediate priority as it prepares to leave the EU and focusses on “first-tier” countries. Instead, Britain would initially focus on tackling existing barriers to trade.

Free Trade Agreement

A Free Trade Agreement or FTA is an agreement between two or more countrieswhere the countries agree on certain obligations that affect trade in goods and services, and protections for investors and intellectual property rights, among other topics.

India-European Union Free Trade Agreement (Proposed):

  • India-European Union (EU) FTA, officially known as the Broad-Based Trade and Investment Agreement is being negotiated for quite a while. However, in 2013, there was a breakdown in talks in between the two sides and the talks have been stalled ever since. The European Union wants India to reduce the import duties on alcohol and automobiles and India wants the EU to declare India as a ‘data secure’ country.
  • Also, in 2016, India unilaterally terminated Bilateral Investment Treaties with many countries across the world, with many of them being European nations. This has added to the increased scepticism of the nations who have question marks over the future investments to be made in India.
  • The reason why the Bilateral treaties have been terminated is that India has put forward its own condition of exhausting all the judicial and litigation measures available in the country first and then only go for international litigation or arbitration. The 2016 Model Indian Bilateral Investment Treaty requires the foreign investor to litigate at least for five years in the national courts before approaching the international tribunal.
  • In contrast, the EU and Canada had put forward the idea of Investor State Dispute Mechanism at the global level in which the foreign investors in a country can drag the government at the international arbitration centres without exhausting the local litigation means and claim huge losses citing losses they suffered due to various reasons, including policy changes.
  • This has been summarily rejected by India, Argentina as well as Japan. Japan has been opposing it on the grounds that international arbitration will involve huge costs whereas India wants the foreign investors to exhaust the national judicial remedies and then only go for international arbitration.

India-UK Relations

  • Shares in each other’s exports, both goods and services, have steadily declined, and bilateral trade at $14 billion falls far short of their $30 billion goal announced in 2010
  • After Brexit India and UK held talks on the possibility of inking a separate U.K.-India Free Trade Agreement (FTA). MoU between CERT-In and CERT-UK to promote closer cooperation between India and UK for exchange of knowledge and experience in detection, resolution and prevention of security-related incidents
  • A lack of trust permeates the bilateral relationship between Britain and India: Britain’s former High Commissioner to India.

Key Issues:

When it came to India, the British government doesn’t have a strategy and rather than involving a joined-up approach, random interventions were made by individuals within the British government that were inevitably ineffective.

India’s concerns3

  • Perception in India that Britain was too supportive of Pakistan
  • Recent efforts of the Indian government to extradite high net worth individuals such as Vijay Mallya back to the country and
  • Recent row over student visas

British concerns

Demands around opening up of financial and legal services in India, and its opposition to India’s visa and mobility demands as part of any agreement.

Outcome of latest Modi visit:

Enhanced language on fighting terror groups, naming the LeT and Hizbul Mujahideen for the first time, jointly pushing for the UN Comprehensive Convention on International Terrorism and strengthening strategic cooperation and intelligence sharing through annual consultations.

Outcome of Theresa May visit:

  • MoU on Ease of Doing Business: Under it, expertise from UK Government will be made available to relevant departments and agencies of the Indian Government for the ease of doing business drive. Important areas of cooperation include tax administration, regulatory regimes, support to businesses and start-ups, competition economics etc.
  • MoU for cooperation in the field of Intellectual Property:
  • It includes exchange of experience, best practices and knowledge of IP awareness among the public, businesses, industry, R&D organizations and educational institutions

Visa Issue:

  • New Visa reforms that impacts India IT companies
  • From April 2017 onwards a company (including India-based), looking to bring a worker into the U.K. for short duration, specifically to carry out the work of another organisation, will have to pay them a minimum annual salary of £41,500.
  • This minimum threshold represents a 67 per cent increase from the extant limit of £24,800.
  • The reforms proposed include significant salary rises, levies and restrictions that will distort the U.K. market, restrict access to the much-required services and increase costs for all.
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