India has fast-tracked its trade negotiations recently, prioritizing India to be a major player in global value chains. A comprehensive agreement with the United Arab Emirates was signed in a record time of 90 days. In our Economic Cooperation and Trade Agreement (ECTA) with Australia, we made a commitment on wine for the first time, paving the way for the liberalization of sensitive products imported from the UK and the EU. Nevertheless, the Australian industry is unhappy and the ECTA has yet to be approved by the Parliament of Australia. The India-UK interim deal could be extended even after Diwali. Are our trade talks losing momentum?
In partner countries, industries are not happy with fast-track, low-ambition trade deals. India is seen as highly restrictive in its commitments on areas of its export interest. For example, in alcoholic beverages, UK companies are among the largest investors and largest suppliers of whiskey and intermediate products used for manufacturing in India, yet we have seen the market open up even after four rounds of negotiations. No commitment has been made for There is growing concern in UK industry that a reduction in tariffs in whiskey may not be part of an interim trade deal, and that tariff cuts account for more than 70% of UK agri-exports, without any benefit to it. Not possible.
While there are hardly any customs duties for alcoholic beverages in the UK, India’s basic customs duty of 50%, plus an agricultural infrastructure development cess of 100%, is among the highest globally. This 150% duty and cess on intermediate products is adversely affecting ‘Make in India’. Duties can be nil on materials and raw materials that are not domestically made. This will reduce manufacturing cost, increase investment and create jobs. The reduction in duty in bulk imports will facilitate value addition in the country. Indian companies are exporting products like cakes and biscuits to the UK and the European Union from their manufacturing units in countries like UAE. If intermediate dairy products are allowed at a lower tariff, then such products can also be manufactured in India for export.
Will reduction in tariffs on final products have an adverse effect on Indian industry?: One of our reasons for high tariffs is to keep the domestic market closed to foreign competition. However, in the case of products such as whiskey, currently less than 2% of the original bottled products are imported into the Indian market. Even if the tariff goes down to zero, Indian companies can offer competitive prices and imports will not exceed 5%, according to stakeholders in the iCareer-Trade Promotion Council of India consultation in 2022. Similar responses were obtained for the automobile and auto-component sectors. -A-Vis UK. In products where India has a strong manufacturing base and cost competitiveness, tariffs may be brought down in a phased manner.
Cross-bargaining can lead to stalemate: Export industries in sectors such as textiles and apparel have sought near-zero-zero tariffs with markets such as the UK. Others in products such as alcoholic beverages are confident that their market share will not be adversely affected by the reduction in tariffs, but they are looking to hand-turn the UK trade to relax the maturity requirement for a period of at least 3 years. want to use the agreement. They argue that due to India’s warmer climatic conditions, whiskey produced here matures faster than in the UK, and if a 3-year period is to be followed, the spirits will evaporate significantly, resulting in a significant loss of alcohol. Will happen. , raising costs for domestic manufacturers. This argument does not consider that parts of India in the Himalayan region have a climate similar to that of Britain.
The UK imports spirits made in India at zero duty which are sold as ‘Indian Spirits’. Indian companies want it to be sold as ‘Indian Whiskey’. Scotch whiskey is a Geographical Indication (GI) product. Sometimes molasses is used instead of grain to make whiskey; Some stakeholders want the UK to change its food safety regulations to allow molasses. For exports such as Basmati rice, grapes and mangoes, Indian producers are working hard to comply with the food security requirements of the importing countries. In others such as alcoholic beverages and dairy products, some stakeholders want importing countries to relax their food safety standards and GI requirements. This is making our trade negotiations difficult. Delay in the deal will be at the cost of our exporters, who are facing competition from other developing countries like Vietnam, which enjoy zero duty.
The Way Forward: In any business deal, there are stakeholders with different interests. Indian policy makers can examine various views held by producers, user industries and consumers and then take decisions that benefit the country. Intermediate products, GI products and products where India has an export interest or cost competitiveness over its trading partners may be liberalised. Tariff liberalization may be done in a phased manner so that it does not hurt the domestic industry. In addition, the rules of origin and trade remedial measures should be carefully drafted. Markets such as the UK and the EU are major export markets, with trade agreements with which can lead to a fairly positive trade balance if designed smartly. India can work with FTA partner countries to enhance cooperation, capacity building and business-to-business partnerships so that Indian companies can export more to these markets. With political uncertainty in the partner countries, it is time for India to show its interest in closing trade deals in some high-tariff sectors like alcoholic beverages and automobiles by accepting the requests of the partner country.
Arpita Mukherjee is Professor at the Indian Council for Research on International Economic Relations.
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