- The PMs are building on existing relations and developing a new free trade agreement.
- The talks highlight an eastern shift in UK trade priorities.
- This agreement is central to Johnson’s post-Brexit strategy for trade and diplomacy.
Why is Johnson in Romance with Modi?
Answer: These negotiations are testament to the Modi’s and Johnson’s strong relationship.
At the start of the year, with UK Prime Minister Boris Johnson mired in domestic scandal, new trade developments with India have been somewhat overlooked. However, these free trade agreement (FTA) negotiations perhaps deserve more attention, as the proposed agreement could yield several positive results for both Prime Ministers Johnson and Modi.
The two nations have a closely intertwined history and in recent years, India and the UK have enjoyed a healthy relationship. The UK boasts an Indian population of 1.5 million and directly benefits from what former Prime Minister David Cameron dubbed ‘a new special relationship’. India is Britain’s second-largest provider of FDI, and profits significantly from this close relationship. Initiatives like the UKIERI and existing agreements on trade between the two conservative leaders, facilitate a blossoming romance. Their strong relationship is evident in Modi’s attendance of the G7 summit in June 2021, as a guest nation of the UK.
These negotiations will encompass various aspects of the UK and India’s relations including: importation and exportation, movement of people, and academic and professional collaboration. Also to be discussed will be a review of the Enhanced Trade Partnership put in place in May 2021.
What does Johnson want?
Answer: This agreement offers post-Brexit recovery and the image of a successful independent UK for Johnson.
A successful FTA will be to Johnson a solution to diplomatic issues brought about by Brexit and an opportunity for trade outside of the EU. These negotiations lay the groundwork for a UK that is increasingly looking east for trade opportunities, proving the viability of Brexit.
The terms of this agreement promise a step towards stabilising UK trade and gaining ground in the post-Brexit landscape. For the British leader, the potential is tangible; a possible £28 billion boost to total trade and an increase of domestic wages by £3 billion by 2035 is not to be laughed at. The FTA also implies accessibility to India’s growing middle class, forecast to increase exponentially in the coming decades, as well as meeting the goal of doubling UK-India trade by 2030.
Driving this agreement is Johnson’s desire to remove barriers on cooperation between the two countries. Cutting tariffs on goods like Scotch whisky and British-made cars, as well as improving the exchange of financial services and renewable technologies. The Prime Minister’s motivations are to strengthen ties with non-EU leaders and ‘drive innovation’, proving the viability of an independent UK.
The advantages of these negotiations have at times been overstated (as a means to promote the viability of post-Brexit trade) However, there is no denying that a successful free trade agreement with one of the world’s fastest-growing economies would promote Johnson’s ideas of an autonomously successful UK.
This priority has been at the front of Johnson’s mind in other attempts at FTA negotiations with the US and Australia. After trumpeting this type of agreement during the leave campaign, it was revealed Biden did not deem the agreement as a priority and negotiations ultimately fell through. A deal was signed with Australia, but has been heavily criticised for being one-sided, with little real benefit to the UK.
The Prime Minister is in hot water: his party full of divisions regarding ‘partygate’ and his approval ratings sitting at 22%, the lowest of any conservative leader since 2013. As such, he will hope for productive negotiations and something to show for the Brexit campaign that has dominated his time in office.
What does Modi want?
Answer: Modi seeks to carefully boost the Indian economy and develop already existing trade agreements with the UK.
With such a large part of the Indian diaspora living in the UK comes an inherently common cultural history shared between the two nations. Modi, who has called India -UK relations a ‘living bridge’ will no doubt see the mutual advantages of this FTA.
India is no stranger to this type of deal, with 10 FTAs signed between 2000-2010. However, while these agreements have been a useful means of boosting commerce and investment in the region, only one has been signed since 2012. This is likely due to Indian fear of dependency on this type of agreement; trade deficit with previous countries increased following the signing of FTAs in the past and Modi will be cautious to enter into any type of import dependence.
One of Modi’s motivations will also be to review the already established trade agreements with the UK. The aforementioned Enhanced Trade Partnership will be scaled up in line with new mobility and immigration agreements that have at their centre the freer entry for skilled Indian workers. With less competition from European workers that will no longer enjoy free movement to the UK post-Brexit, India will have an easier time exporting IT and technology services to the UK.
As dynamics shift in Indian trade, with exports to Asian countries dropping as of late, Modi is looking to review current FTAs and establish new ties with western countries. The Prime Minister will have to balance the benefit of freer academic movement with the potential for brain drain, but as both governments have declared there to be ‘no deal-breaking issues’, the agreement promises to be advantageous for Modi.
Overall, Modi stands to benefit significantly from this FTA, and the strengthening of ties with the UK has potential for lucrative bilateral trade in both the near and distant future.
What is Johnson doing?
Answer: Johnson’s move is part of a wider British tilt to the Indo-Pacific, and signifies what the PM hopes will be a golden post-Brexit era.
Another goal of Johnson’s is to reposition the UK towards more deals like this in the future. The Prime Minister is keen to start a ‘five star year of trade’ in the UK, encouraging trade with Mexico, Canada and the Gulf. A successful start to this campaign of non-EU trade could be achieved should these negotiations prove successful, especially as India has no such agreement in place with the EU.
Equally, Johnson is pushing UK entry into the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership). Consisting of 11 members with a GDP of £9 trillion, entry would be an impactful post-Brexit victory for Johnson, again demonstrating the viability of autonomy. Accession would come with several economic benefits. Slashing off tariffs on 99.9% of goods, (the current rate is 85.4%) and immediate economic growth are promised by advocates of the UK’s entry into this bloc.
While Johnson, for now, is actively trying to secure strengthened ties with India, the longer-term goal is clear; entrance into the quickly developing Indo-Pacific. This is paramount to the wider goal of a prosperous Britain that, in his words, ‘took back control’ with their departure from the EU.
What does this mean for you?
Answer: The UK’s changing priorities highlight shifts in global trade, and the significance of new players.
While these talks do little to detract attention from developing controversy at home, they are significant for the UK’s posture abroad. As EU trade with the UK has significantly decreased since Brexit, despite various ‘rollover deals’ signed during the transition, British trade is opening up to global partners. The majority of British trade is now conducted with non-EU countries. This leaves EU countries without the same access to British markets and potentially hurts trade within Europe. That being said, UK trade suffers far more without Europe than vice versa.
Successful completion of an agreement guarantees long-lasting, positive implications for the UK and India’s ‘special relationship’, reinvigorating Britain’s shift to eastern trade. A decline in the last decade has left Britain struggling in terms of Asian trade and only recently has progress been made in the region. Agreements with Singapore and Vietnam were signed in 2021, as well as negotiations with ASEAN countries regarding technology, education, and climate change.
These talks indicate the growing significance of the Indo-Pacific and the CPTPP, which have also received accession submissions from South Korea and China. This trade bloc has been praised for liberalising digital trade as well as setting out an institutional approach to reform, incentivising the reorder of Asia-pacific supply chains. The success of the CPTPP could see an increased use of FTAs in international trade, especially considering the amount of countries that have expressed interest in accession.
Overall, should negotiations produce the significant results implied so far for both leaders, Johnson can be satisfied in the knowledge that he will have to some extent proven that the UK can trade prosperously and autonomously. Whether he will be in office to relish the moment, however, is still yet to be seen.
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