Brexit dividend – Free trade agreement with India?

Negotiations for a Free Trade Agreement between the UK and India are currently underway, negotiations are expected to conclude by the end of 2022 and potentially by October 2022. In light of the release of the UK from the European Union (Brexit), we analyze the outlook for trade between the UK and India and identify key considerations for Indian and UK businesses.

The UK and India entered into an Enhanced Trade Partnership (ETP) in May 2021 and began negotiations for a full Free Trade Agreement (FTA) in January 2022. A year-end timetable has been suggested for an interim pact, but latest indications indicate it could be agreed by the end of October 2022. ETP is part of the ‘2030 roadmap’ for future UK-India relations and was highlighted during Prime Minister Boris Johnson’s visit to India in April 2022. The prospect of a UK-India FTA will bring key benefits to UK and Indian businesses. Brexit will thus allow the UK to forge its own trade alliances, but on the other hand could raise concerns among Indian investors who are focusing on the European market. In this article, we analyze the ETP, the future FTA and the impact they are likely to have on trade between the UK and India.

The Enhanced Trade Partnership and FTA Negotiations between UK and India

On May 4, 2021, the UK government entered into an ETP with India. The ETP investment program contains around £533m of new Indian investment in the UK as well as UK export deals to India worth over £446m. The UK and India have also declared their joint intention to work towards a comprehensive free trade agreement. In its press release, the British government commented, “India’s population is larger than that of the EU and US combined and by far the largest market the UK has committed to negotiating a trade deal with to date.”

The ETP is part of the broader “Roadmap 2030” agreed between the two countries as a framework for establishing closer ties in areas such as trade and investment, defence, climate and health. What tangible impact the ‘Roadmap 2030’ will have on Indian and UK businesses remains to be seen, but it has paved the way for FTA negotiations.

Since leaving the EU and the end of the Brexit transition period on December 31, 2020, the UK can now negotiate and conclude FTAs. India is a key trading partner, with trade between the UK and India valued at around £23bn in 2019 and the ETP aims to double that figure by 2030. A public consultation of 14 weeks ending August 31, 2021 collected public and business views on the current UK-India trading relationship and potential improvements. Meanwhile, India and the EU agreed in May 2021 to resume negotiations for a trade deal. Formal negotiations between the UK and India began in January 2022. There are 26 chapters in the proposed UK-India FTA, four of which have already been agreed at the time of writing. Substantial progress has been made in the negotiation of the other 22 chapters.

Benefits and Concerns for Indian and UK Businesses

One of the main benefits will be the removal of trade barriers and the UK government has already indicated that the removal of tariffs will benefit UK exports as currently only 3% of the product ranges exported from the UK to India are duty free. Furthermore, India deploys more technical barriers to trade as well as sanitary and phytosanitary measures than the UK, where an FTA can benefit UK companies exporting products to India.

On a practical level, Indian and British companies will be reassured by the “2030 roadmap”. Its framework sets goals for the future relationship between the UK and India in priority areas beyond the FTA – such as migration, education and culture. Following discussions between Prime Minister Boris Johnson and Prime Minister Narendra Modi in April 2022, the UK has indicated that it may make concessions in the area of ​​immigration. India had previously expressed a desire for its citizens to have increased access to the UK as part of any trade deal. Being able to use English as a common language will also help Indian and UK businesses to cooperate under a future FTA.

On the other hand, many Indian companies investing in the UK in recent years, and certainly before the UK Brexit referendum in June 2016, may have done so with the wider European market in mind. The impact of Brexit on UK-EU trade relations, including the movement of goods and services, will be a major concern for these Indian foreign investors.

Investor Protection

Another important consideration for business will be how investor protection will be handled in a future UK-India FTA. The UK government’s consultation brief acknowledges the relevance of including investor protection provisions in a future FTA, but does not go into detail on how this will be addressed. India’s Ministry of Corporate Affairs has already engaged an Independent Expert Panel on Company Law to investigate and report on investor protection in India in light of the growing number of foreign investors in the country. Under the “2030 Roadmap”, UK companies are encouraged to invest in Indian manufacturing while Indian companies are encouraged to raise funds in the London market. The FTA will have to be clear on the protection that will be granted to these companies in order to invest with confidence.

Investor protection provisions that are likely to be considered in the FTA negotiations include fair and equitable treatment (FET), possible most-favoured-nation (MFN) clauses, as well as provisions to compensate investors. Indian and UK companies will also want clarification on the dispute resolution options available in the event of a breach of investor protection provisions.

During the negotiations of the EU-Singapore FTA, Member States challenged the EU’s competence to negotiate, among other things, investor protection provisions. The Court of Justice of the European Union (CJEU) has concluded that the EU does not have exclusive competence to negotiate provisions relating to investor protection (including provisions relating to “portfolio” investments and Investor-State Dispute Settlement). After Brexit, India will be able to negotiate with the UK on all aspects of the FTA, including investor protection provisions. Not requiring EU member states to contribute can also make entering into a UK-India FTA a somewhat simpler process compared to an FTA with the EU.

Conclusion

Regardless of Brexit, a fully-fledged UK-India FTA would encourage cross-border investment and related transactions. HFW can assist you with corporate transactions, investment and regulatory advice, as well as handling disputes and litigation.

About Aldrich Stanley

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