India-UK CETA: Let's not overlook what we gave up to secure this deal

Mint

8 hours ago

Most reports on the recently-signed Comprehensive Economic and Trade Agreement (CETA) between India and the UK have focused on positive aspects of the agreement. But the CETA, as with any negotiated outcome, is also a compromise between the competing interests of the two countries. It is therefore important to understand the possible implications for India. Here are some key takeaways from this trade pact.
First, with the UK eliminating customs duties on almost 99% of India's exports, significant opportunities would open up for labour-intensive sectors such as textiles and clothing, gems and jewellery and leather products, which currently face 4-16% duty. This will provide an edge for these exports over competitors from Bangladesh, China and Vietnam.
However, an increase in India's exports of manufactured products would depend on the UK not imposing a carbon tax. The ability of exporters in labour-intensive sectors to scale up production of high-end products and comply with sustainability requirements will also be key.
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Second, in the agriculture and marine sectors, most of India's exports will enjoy duty-free access. But two products of India's export interest—milled rice and sugar—will not receive tariff cuts. Further, to convert export potential into actual consignments, India's exporters of agricultural and marine products will have to comply with the UK's onerous health standards and traceability requirements. Due to high costs and technical complexities, this may be problematic for small exporters, thereby limiting their ability to benefit.
Third, India's service exports to the UK, presently around $20 billion, are set to gain significantly, especially business services, IT/ITeS and professional services. In addition, the Double Contribution Convention is likely to benefit almost 75,000 Indian workers in the UK. That said, with the CETA silent on the UK granting 'data adequacy' status to India, our negotiators appear to have missed a golden opportunity to boost exports of digitally delivered services.
Fourth, India has given deeper access to its government procurement market to the UK than it conceded to the UAE in its free trade agreement (FTA) with it. In procurements to be made under the Preference for Make In India Order, UK suppliers will be treated at par with Class 2 Indian suppliers, a concession that was not extended to UAE. This could undermine the Atmanirbhar Bharat and Make in India programmes.
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Further, India has sharply lowered the threshold above which non-discriminatory treatment would apply to the procurement of goods and services from ₹225 crore in its FTA with the UAE to merely ₹5.5 crore under the CETA with London. This could hurt micro, small and medium enterprises (MSMEs) seeking government contracts, as they would now have to compete with UK suppliers even for low-value contracts above the ₹5.5 crore threshold.
Since India has given the UK greater access to its government procurement market than it did to the UAE, it is likely to face strong pressure to offer even deeper concessions in ongoing trade talks with the EU and possibly the US.
As annual procurement by the UK government from sources outside its territory and the EU has historically been very low—estimated to be less than £10 billion—Indian exporters are unlikely to make any substantial export gains in the UK government procurement market.
Fifth, by recognizing that the preferable and optimal route to ensuring access to medicines is through voluntary licensing, India appears to have almost given up the possibility of using a provision for policy flexibility under the TRIPS Agreement at the World Trade Organization (WTO) to promote affordable healthcare—compulsory licensing.
Arguing that voluntary licensing is a 'Global best practice'—as is being said in favour of the CETA's provision—would support Big Pharma's attempts at preventing developing countries from using WTO -compliant provisions such as compulsory licensing. This also risks eroding India's credibility as the voice of the Global South on international platforms related to health issues.
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Sixth, by agreeing to the broadly aligned template of developed countries on non-trade issues such as labour, environment and gender, India's implementation of its domestic laws and regulations on these will be subject to monitoring and scrutiny by London through various committees under the CETA—this looks like a loss of sovereignty for no obvious gain.
These provisions could also open the door for more onerous and legally enforceable commitments in future trade agreements, including the imposition of trade sanctions for non-compliance. The fact that the CETA offers the UK extraordinary concessions on government procurement is a sombre reminder of what could happen on non-trade issues in India's ongoing bilateral negotiations.
Overall, in the short-term, the India-UK CETA has the potential to lift India's exports to the UK to about $4 billion each year, as estimated by the UK government. However, alarm bells may start ringing if some of the possible adverse impacts materialize.
These are the author's personal views.
The author is an expert on international trade issues.