India play hardball on UK trade deal as Liz Truss scrambles for a win

India play hardball on UK trade deal as Liz Truss scrambles for a win

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LONDON — India is in a tough negotiation as the crisis-hit British government tries to clinch a coveted trade deal within weeks.

Prime Minister Liz Truss, whose fledgling administration needs a break amid market turmoil and plummeting polls, has ordered her trade chief to meet an October 24 Diwali deadline for the agreement set by his predecessor Boris Johnson and the Indian Narendra Modi. But, weeks away from talks to secure a post-Brexit victory, some crucial sectors are spooked by what is on the table.

If the deal “doesn’t change much,” said a senior businessman briefed on the content of the talks, “it will be in ‘a bad deal is worse than no deal’ territory.”

That’s not to say UK negotiators – in daily talks with their counterparts – aren’t scoring victories. The UK is set to get a 150% Indian federal tariff reduction on Scotch whiskey imports, two people familiar with the matter have told POLITICO.

It would mark a quick victory for an iconic industry led by Trade Secretary Kemi Badenoch, who addresses the Conservative Party Conference in Birmingham on Monday. Her boss Truss – herself a former British trade chief – has described securing a deal with India as one of her top trade priorities.

Yet, as always with global trade negotiations, there is a catch. With India poised to cut the federal whiskey tariff as both sides rush to an end, Delhi’s negotiators are using it as leverage to get what they want from Britain.

A spokesman for the UK’s Department of Commerce said it “cannot comment on the negotiations live”, but that “we are clear that we will not sacrifice quality for speed”. The UK, he stressed, “will only sign when we have a deal that meets UK interests”.

Privately, a government official acknowledged that India had “played dirty” through a public pressure campaign to push Britain into a deal which insiders say will focus on eliminating tariffs on goods.

Even if he guarantees the tariff reduction on Scotch, the whiskey industry remains concerned that a host of bureaucratic hurdles will still need to be removed to make the reduction worthwhile.

“Even if Scottish tariffs come down, there are all sorts of market access barriers, particularly at state level, which will continue to be a major challenge,” said David Henig, UK Trade Policy Director. at the European Center for International Political Economy (ECIPE) think tank.

In a new twist last week, India threatened to impose $247 million in retaliatory tariffs on scotch and other industries if Britain did not abandon controversial safeguards it had put in place to protect its national steel industry.

Although the two issues are ostensibly separate, some trade pundits saw it as a tough, well-worn negotiating tactic from Delhi, with one person close to the deal saying it appeared designed to give India “leverage additional” in the talks on a free trade agreement. .

British Prime Minister Liz Truss | Carl Court/Getty Images

“India did this to the United States a few years ago, again over steel,” they noted, saying the move is “no different” from last-minute pressure tactics. minute from India during the COP26 climate summit and the recent WTO negotiations on the COVID-19 vaccine. to access.

The move shows that India “has more clout to secure the narrowly focused trade deal it expects from us”, Henig said. Such pressure tactics are “certainly in the playbook of trade negotiations”, said another trade expert.

A person close to the Scotch whiskey industry disputed the notion that the steel retaliatory measure was linked to the wider trade talks, saying Delhi was just ‘reacting’ to the UK’s move to boost its steel industry in June.

“Playing Dirty”

As the disputes over whiskey tariffs continue, the UK service sector has its own doubts – and time is running out.

Several trade associations – including Britain’s technology, financial services, pharmaceuticals and chemicals industries – have raised concerns about the speed of the talks and what the deal will offer UK businesses in August.

“I’ve been saying for some time that I’d rather we get a more comprehensive deal than rush to get it done by Diwali,” said Karan Bilimoria, Cobra beer tycoon and founding chairman of the UK India Business Council.

Negotiations should “ideally” be completed by the end of the year, Bilimoria said, leaving the door open for a pact to be struck that benefits Britain’s key growth sectors. But he added: ‘From what I understand the government is working on a deal that will be broad, comprehensive and benefit the UK and our businesses.

Britain remains predominantly a service-based economy: the sector generated 78% of total UK economic output from April to June this year.

Securing both the free flow of data between countries and strong protections for intellectual property rights were the main “overarching objectives” of the deal set out in the UK’s strategic approach for the January talks.

Yet data also appears to be a major obstacle to securing a deal with India that guarantees big wins for the British services giants.

The Britain-India deal “may not allow meaningful access for UK technology, digital and financial services companies”, warned Kathryn Watson, trade policy expert at consultancy Flint Global. India, she pointed out, “is very protectionist when it comes to transferring data outside of its region and is making it increasingly difficult for companies to store data outside of its borders and operate in the country without settling there first”.

The deal is “mainly a fairly small set of tariff cuts rather than anything significant that will change the cost of doing business in India for UK businesses”, Henig said.

Indian Prime Minister Narendra Modi | Yuichi Yamazaki/Getty Images

Businessmen and experts said the sheer volume of areas missing from the pact will now force UK negotiators to build joint committees into the deal so that outstanding issues can be resolved in the future.

“Given that not everyone will get everything they want, UK negotiators are aware of the need to put structures in place that you can come back to. [the deal] through the implementation of the agreement,” said another veteran businessman.

UK businesses “should be skeptical that the structures put in place for the future will deliver meaningful and rapid results,” Henig said, referring to all the joint task forces and committees formed by the pact. “But they may be able to make incremental gains, particularly if the focus on the UK side is on implementing deals rather than negotiating new ones.”

Truss gave British negotiators as broad a mandate as possible to get the deal done before the Diwali deadline.

“It appears to be a commodity-based deal which gives Indian companies the right to sell in the UK without having to have a presence in the UK,” the first senior businessman quoted said. “While what the UK wanted was a services and goods deal with much better establishment provisions, with at least something on digital trade and intellectual property rights.”

As it stands, there is so little for the services sector in the deal “that it feels very skewed” in favor of India, they added. “It’s a shame because this is a once-in-20-year opportunity and we won’t be able to renegotiate it anytime soon.”

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