Why in the News? 

India and the United Kingdom (UK) announced the conclusion of a Free Trade Agreement (FTA) after three years of formal talks.

More on the News 

• FTA will be implemented after the finalization of the legal document. 
  • It will consist of 27 chapters such as digital trade, environment, etc. 
• Both countries also agreed to negotiate a reciprocal Double Contributions Convention (DCC). 
• DCC is a type of Social Security Agreement. 
  • It will support business and trade by ensuring that employees moving between both countries and their employers, will only be liable to pay social security contributions in one country at a time.
    • It will include employees temporarily working in the other country for up to 3 years.
  • It will not affect individuals' rights to access benefits from the country in which they pay social security contributions or the requirement to pay the UK immigration health surcharge. 

Key Highlights of the India-UK FTA

• Zero-duty Market Access: Approximately 99% of Indian exports will enjoy zero-duty access to the UK market, covering almost 100% of the trade value.
  • On the other hand, India will cut levies on 90% of British products sold in the country.
  • Within a decade, 85% of British products sold will become tariff-free in India.
• Eases mobility for Indian Professionals: It includes contractual Service Suppliers; Business Visitors; Investors; Intra-Corporate Transferees, their partners and dependent children with right to work; and Independent Professionals like yoga instructors, etc. 
• Ambitious commitment from UK in Services: Such as IT/ITeS, financial services, professional services, other business services and educational services.
• Allowed Participation of UK Businesses in Procurement: UK businesses will be able to compete for a wide variety of goods, services, and construction procurements, for the majority of central government entities and state-owned enterprises.

About Free Trade Agreement (FTA)                                                  FTAs are arrangements between two or more countries or trading blocs that agree to reduce or eliminate customs tariff and non-tariff barriers on substantial trade between them.  It covers trade in goods (like agricultural or industrial products) or trade in services (like banking, construction, trading etc.) and also areas like intellectual property rights (IPs), etc. Early Harvest Scheme is a precursor to an FTA and other trade agreements. FTAs act as an exception to the Most Favoured Nation principle of the World Trade Organisation (WTO). Status: India has signed 13 FTAs in the last five years with its trading partners like Mauritius, UAE, Australia, etc (SBI Report).    India's Experience with FTA's  Growing Trade Imbalance: India's exports to its FTA partners increased by 31 %, while its imports increased by 82%. (between 2017 and 2022) Low Utilisation: India's FTA utilisation remains very low at around 25 %, while utilisation for developed countries is between 70–80 %. Non-Tariff Barriers:   Global Trade Alert database shows that between 2020 and 2024, over 26,000 new restrictions related to trade and investments have been globally imposed. Unequal Competition:  E.g., South Korea and ASEAN's manufacturing sectors outperformed India's in critical industries such as electronics, etc.  Other: Complexity of certification requirements and rules of origin, etc.  Note: Assessment of Trade agreement cannot be done based on the trade balance only. There are other potential gains in the form of technology transfer, value-added linkages, trade-related investment flows, and improved access to a greater variety of intermediate goods and services.

How the India-UK FTA can help shape Future FTAs? 

• Swift Negotiations: India- European Union (EU) negotiations have been in process since 2007. 
• Safeguard of Sensitive Sectors: Sensitive agri-products like dairy products, etc. are on the exclusion list.
  • Also, Sensitive industrial goods like plastics, etc. have been included under the exclusion list, thus, protecting India's interest. 
• Gradual Removal of Duties: In the India- UK FTA, the former agreed to cut or remove duties gradually over a longer period which ensures adequate time for domestic industries to adjust to increased competition.
• Emphasis on Mutual Benefits: E.g., UK car manufacturers will benefit from a quota that reduces tariffs from over 100% to 10%

Conclusion

The India-UK FTA not only strengthens bilateral economic ties but also serves as a strategic template for India's future trade agreements with developed nations. By addressing sensitive sectors, embracing modern trade issues, and ensuring a phased liberalization approach, it balances growth with domestic safeguards.