Thursday 22 April 2021 2:00 pm

Strong trade ties with India could put the UK in pole position to join the CPTPP and face up to China

Boris Johnson has cancelled his planned visit to India after coronavirus cases spiralled out of control. Moving the conversation online, in the way many of us have done this past year, in no way diminishes the importance of the discussions he and Prime Minister Modi will have in the coming weeks.

Their dialogue is occurring at a crucial moment for India’s changing position in the world. The UK has an opportunity to play a significant role at this time of choosing: let us not forget that the UK’s engagement with India comes off the back of the Integrated Review of Security, Defence, Development and Foreign Policy – released last month and designed to shape our post-Brexit foreign, defence, security and development priorities and policies. As was widely expected, it advocated an “Indo-Pacific tilt”.

We now need to put these words into action. Part of this relates to the UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (the third largest free-trade bloc in the world by GDP), marking a reorientation towards what is proving to be a major trade policy play in the 21st century.

Boris Johnson is promising an Enhanced Trade Partnership with India could lead to a fully fledged free trade agreement (FTA). There are important commercial reasons for this agreement but it is also driven by powerful geopolitical reasons. India could be brought into an alignment of nations including the CPTPP members, which could serve as a bulwark against some of the most damaging impacts of China’s market distortions and security policies. 

Our combination of offensive and defensive flexibility may help get key asks over the line. For the UK, the priority will be financial services, legal services access and Scotch whisky tariff reduction. For India, the movement of people supplying services will be crucial. There will also be an emphasis on a commitment from the UK not to impose bans on Indian agriculture which are in violation of the WTO Sanitary and Phytosanitary Measures agreement, as the EU has done in the past. 

Bilateral trade flows are currently worth $15.7bn in goods and $18.9bn in services, but there is significant scope for a substantial increase. These important commercial reasons for a deal pale in comparison to the geopolitical dimension. China is a threat not only to the UK but India as well. India is surrounded by a significant Chinese military presence in Sri Lanka and Pakistan (naval bases), and Indian troops have even been killed on the disputed border with China.

India finds itself at a crossroads: it must now choose the axis from which it will base future foreign policy. And it is possible that the UK and India could reach a deal that has proved elusive for many countries.

For India to be brought into the fold, a number of key obstacles persist. India has recently taken action against the property rights of foreign investors, including ignoring the results of arbitration. It should go without saying but property rights form the bedrock of economic systems that leverage the forces of competition to generate economic growth. India’s current market signals on property rights are negative and risk undermining its global reputation and potential. 

When the Prime Minister discusses this issue with the Indian PM, he should make it clear that, while the UK welcomes a deeper relationship with India, this will ultimately depend on whether India endorses, in both word and deed, property rights protection, market competition and open trade.

A strong UK-India relationship will help make the UK a more attractive CPTPP partner, and will also spur other negotiations. The current bilaterals, such as the Japan FTA already concluded, and the Australia and NZ FTAs also help pave the way for a smoother CPTPP negotiation. Trade is also more than just about commercial interests – it is part of wider foreign policy. Ultimately, it is Mr Johnson who holds the cards on this one and needs to play them deftly.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

Share