India, UK sign trade deal with scope for renegotiation

Hindustan Times

2 days ago

The free trade agreement between India and the UK, concluded on May 6, incorporates a mechanism that would allow either party to renegotiate specific clauses if the other offers better terms to a third country through separate bilateral agreements, according to people familiar with the matter.
The provision, now undergoing legal review, reflects UK's concern about missing future opportunities as India rapidly expands its trade relationships with major economies, including ongoing negotiations with the US and the European Union.
'The mechanism is mainly proposed by the British side as almost all major developed economies are holding FTA talks with India, which is rapidly growing to become the third largest by 2028. The UK does not want to miss out on any major opportunities even in future,' said one of these people, who asked not to be named.
Although the agreement was concluded on May 6, it will require almost a year of clause-by-clause legal scrutiny and necessary approvals from competent authorities in both countries before it can be implemented, the official added.
In a recently published policy paper on the India-UK FTA, the British government highlighted this renegotiation feature. The paper described the 'ambitious' deal as laying 'a stronger and mutually beneficial' relationship between the two countries, noting: 'We have sought to secure a deal that will keep pace with India as it grows. Alongside India committing to more than double their tariff reductions over the next 10 years, we have also secured numerous mechanisms that ensure that if India were to offer better terms to a different country, we could return to the table.'
The timing is significant as India simultaneously pursues trade agreements with multiple partners. The country is currently in intensive negotiations with the US for a Bilateral Trade Agreement, with an early tranche of it expected this month.
The India-UK agreement includes several key provisions designed to protect both countries' domestic interests while facilitating trade. General provisions and exceptions would allow both parties to take measures that might not otherwise conform with the agreement's commitments in order to serve legitimate public policy objectives.
'The trade agreement will also ensure the two countries would protect their respective domestic interests and respond appropriately to international developments in future. In other words, the two partners will be free to undertake justifiable measures to protect their respective security interests,' a second person familiar with the negotiations said.
According to the UK policy paper, these flexibilities will 'protect domestic policy space and preserve the UK and India's rights to regulate in the public interest.'
The agreement establishes an institutional framework including a joint committee with defined powers and functions to oversee the pact, ensuring it can drive economic growth in both countries. A subcommittee on sustainability will also be created.
Trade facilitation features prominently in the deal, with both partners agreeing to release goods as rapidly as possible after arrival at customs. 'The idea is to do so within two days provided all necessary requirements are met in such cases where no physical examination would be necessary,' the second person said.
According to an analysis by consultancy firm EY dated May 7, the deal will significantly benefit both economies. British exports will see 90% of UK tariff lines facing reduced tariffs, benefiting products including whisky, gin, automotive goods, medical devices, cosmetics, aerospace components, lamb, salmon, electrical machinery, soft drinks, chocolate, and biscuits.
Whisky and gin tariffs will decrease from 150% to 75% initially, dropping to 40% over a decade. Automotive tariffs will fall from over 100% to 10% under a tariff rate quota system.
For India, 99% of Indian tariff lines covering nearly 100% of trade value will benefit from zero duty, opening export opportunities for textiles, marine products, leather, footwear, sports goods, toys, gems, jewellery, engineering goods, auto parts, engines, and organic chemicals.
The FTA is projected to increase UK GDP by £3.3 billion by 2035 and support significant employment gains in India, particularly in labour-intensive sectors like textiles, leather, and footwear. Bilateral trade, valued at $60 billion in 2024, is projected to double to $100 billion by 2030, according to the EY report.