Publications

From colonial subject to major trading ally, the announcement of the India-UK Enhanced Trade Partnership on 4^th May 2021 by both Governments, marks a paradigm shift in the geo-political strategies of both countries, who appear to have conclusively moved past their recent issues including Vodafone & Cairn.

In what is being seen as a “big step forward” by the UK, this move is clearly a post-Brexit economic strategy. With the UK Government’s Secretary of State for International Trade terming it a “golden opportunity” that is likely to bring British businesses at the “front of the queue” of India’s economy, and with Cairn Energy PLC moving to settle its tax dispute against India in November 2021 as a response to India’s enactment of the Taxation Laws (Amendment) Act 2021, passed to settle retrospective tax cases resulting from the 2012 legislation on indirect transfer of Indian assets made overseas, the attitudinal change is certainly not limited to the sovereigns.

A deeper look into the schematics of these changes, would reveal that both sides are interested in bolstering trade relations and are targeting a whopping GBP 28 billion a year by 2035. With key opportunities ranging from trading in goods such as pharmaceuticals and aviation machinery as well as services such as legal and accounting, this could very well be that one big break India needs to successfully achieve her trillion dollar economy dreams.

But what about the associated risks of engaging with bilateral agreements, especially given India’s bitter experiences with Bilateral Investment Treaties (BITs) and their inherent Dispute Resolution mechanism (ISDS)? Free Trade Agreements (FTAs) like BITs are international agreements between States whereby both parties agree to remove or reduce tariff and non-tariff barriers to trade and investment between partner countries. Unlike BITs however, FTA’s do not put fetters on the regulatory sovereignty of its signatories, which often have to regulate in public interest on issues ranging from environment to health and safety of animals and humans. Moreover, BITs often include open ended and vague definitions of substantive provisions such as that of ‘investment’ and ‘free and equitable treatment’, and owing to the ‘adhoc’ism proliferated by the inherent ISDS mechanism, many have been interpreted excessively in favour of private investors and this is also one of the major reasons for the backlash surrounding the BIT regime.

FTAs on the other hand have more thorough and detailed provisions, thanks to the extensive negotiations surrounding their finalisation. According to a World Bank study of 279 FTAs notified to the WTO in 2015, each of the FTAs under the study contained ‘core’ and ‘non-core’ provisions depending upon the objectives surrounding each. The ‘core’ provisions according to the World Bank, are the ones that are usually more economically meaningful for either contracting party and include aspects ranging from schemes for tariff reductions, State subsidies, Intellectual Property protections, taxes on exports, ease with customs amongst other things.

So why were FTAs not the instruments of choice for India in the first place? The answer to this question is rather complex and not very conclusively established. According to academicians Tobin and Busch of the Georgetown University, BITs as opposed to Trade Agreements are ‘easier’ to conclude, since the issues contained in the latter are often subject of internal opposition and criticism which makes BITs earn favour among developed nations to pursue concluding BITs with lesser developed States, unless Trade Agreements draw major benefits for the former or when they can provide substantial advantages to locally based corporations when compared with alien counterparts. According to them, Trade Agreements, require much more complex and time-consuming negotiations as opposed to BITs, most of which India following in the footsteps of many countries, had also concluded prior to 2015, and which were majorly based on the lines of those concluded between other states that contained vague and loosely worded provisions resulting in the problems she is still having to face with the ISDS regime.

Having moved past the ISDS experiences, India and UK have announced their intentions to culminate their already existing trade relations into a more robust India-UK FTA in May of 2021. This move easily happens to be one of the biggest partnerships India will witness, as both nations walk into extensive deliberations over the coming weeks. A notification issued by the Union of India’s, Ministry of Commerce and Industry in June 2021 reveals the Government’s intentions to have a more inclusive agenda which may include tariff reductions in goods and their concomitant market access in UK to liberalisation in services as well as in e-commerce and in areas of environmental sustainability.

This excitement is not only limited to the Indian side as UK too seems majorly interested in a strategic trade partnership. An acknowledgement of India contributions to global growth in recent years is revealed by a suggestion paper released by the UK Government’s Department of International Trade, that acknowledges the fact that India is home to a fast emerging middle class whose expenditures owing to rising standards of living could overtake that of the United States in less than a decade. With the World Bank having pushed India’s Ease of Doing Business ranking to 63 out of 189 in 2020 and further revealing that most Indian citizens would join the status of global middle class by 2047, the UK’s centuries old romance for India seems to be rekindled, albeit as trade partners.

In an era where the Dragon dominates the global markets majorly and in view of the pandemic ridden economies of India as well as UK, an FTA, if pragmatically envisaged and concluded in the coming weeks, could turn out to be that one major thrust India needed since her emancipation in 1947 to elevate her economic status as well as a major shift in Geo Politics of the Indo-Pacific region.