The official bilateral UK-India Trade Review: An analysis

UK India corridor FICCI - EPG case study

Earlier today, Unearthed released a copy of the official bilateral UK-India Trade Review, prepared for Joint Economic and Trade Committee (JETCO) on 11 January 2018. The document has been described as a key text for the new UK-India trade partnership announced in April at the Commonwealth Heads of Government Summit in London. This article contains a summary of what it says, and my personal take on what it means.

The headline story is that India will not benefit much from relaxation in non-tariff barriers such as inspection regimes and food standards post-Brexit, under the British government’s current proposed version of Brexit, because many decisions will “remain within EU competence”.

The sectors that interest the UK

Based on current and potential future importance, the five goods sectors identified as “sectors of interest” are aerospace, chemicals, automotive, food and drink and life sciences.

Pharmaceutical products and medical devices are identified as areas of export specialism from the UK, as well as where Indian imports have grown strongly from around the world. The Review identifies the UK as having a lower market share for pharma products in India than in comparator markets. Clusters of excellence such as those in Scotland, Cambridge and Oxford have a high amount of potential to grow this relationship.

The chemicals sector is one of export specialisation for the UK too. In the diverse food and drink sector, the UK’s export specialisation is predominantly whisky, which comprised of over 80% of the UK’s exports to India in this sector. In other words, Scotland dominates the export sector to India here.

The UK’s automotive exports are focused on intermediate goods, such as parts for large motor vehicles and engines, from England’s manufacturing heartlands in the Midlands. Similarly, the aerospace sector includes engines and their components, aircraft and helicopter parts, spacecraft and other aeroplanes.

In the services industries, UK education is likely the most important sector, followed by travel and tourism, and ICT. The big areas of potential identified here are in financial services, business and professional services exports from the UK to India.

The sectors that interest India

IT and related professional services are by far the largest export from India to the UK. India therefore has a significant interest in concluding a bilateral social security agreement to ensure social security (NI contributions) are not subject to double payment.

Medical tourism is identified as a key area of interest. Traditionally, India has been strong in cardiac and orthopaedic treatments, but increasingly oncology, transplants and high-end treatments are gaining international interest. The NHS could benefit hugely in an area of intensifying budget challenges by encouraging medical tourism to India in straightforward procedures.

The Review highlights financial services as an area of increasing prominence for India globally, but that currently “links between the two countries are not yet deep enough to untap the full commercial potential for either side,” despite multiple bond listings on the LSE in the last three years, and a boom in AIM listings a few years earlier.

Audiovisual services, such as in gaming and visual effects, and broadcasting, are seen as specific areas of opportunity. Regions such as Manchester’s Media City are likely to benefit from any increase in activity.

Issues faced by UK and Indian businesses in sectors of interest

While IP law was seen as thorough in India, IP enforcement in the automotive sector was highlighted as a major challenge impacting the flow of advanced concepts and technologies from the UK.

The other comments from the UK echo similar frustrations other governments have too. They are largely around the complexity that comes from the lack of a common regulatory approach across states in India.

For example, in aerospace, while the scale of opportunity in India is massive, on-the-ground realities of the ease of doing business are different. Lengthy customs delays, lack of transparency and unrealistic local content requirements make it different to bring world-class technology to India.

In chemicals and the food and drinks sectors too, India has complex regulatory requirements that require harmonisation with global norms. For the latter, federal, state and intra-state regulation can be very confusing for foreign SMEs, product registration is difficult, as are many inconsistent labelling and licensing rules. That said, Indian exporters to the UK have broadly similar, specific complaints, which are highly likely to remain post-Brexit.

Some of these came became popular in public discourse in 2015 with Keith Vaz MP delivered a box of mangoes to PM David Cameron when EU imports of Indian mangoes were stopped.

But the one big difference between the two is that the EU’s regulatory requirements are consistent across all EU markets, whereas India’s market is internally fragmented.

In life sciences and medical devices, similar challenges of getting disparate approvals were identified key issues. As India’s pharma industry moves from an emphasis on generics to being more R&D driven over the coming decade, policy clarity on clinical trial compensation particularly in determining causality of injury and costs and liabilities.

In the education sector, restrictions on repatriation of investment profits, lack of mutual recognition of one-year UK Masters programmes, twinning programmes not being recognised and foreign universities not being allowed to set up are all seen as barriers to trade. These are highly important to the UK, as universities have long seen the introduction of the Foreign Providers Bill as a panacea for market entry, and have been consistently disappointed. The UK may be disappointed through – traditionally, little political capital is extended in India to pushing through education sector policy changes.

Other issues

The Review highlighted ongoing issues around enforcement of trade marks for brand protection against the sales of fakes. However, it must be noted that India launched a new IP strategy in May 2016, and the country is significantly better at this than its neighbour China.

Repatriation of funds is unnecessarily complicated, due to regulatory complexity. While the Review didn’t specifically highlight the use of hawala transfers, progress in this area would be welcome all around.

Avoiding double-payment of social security contributions is an issue disproportionately impacting Indian IT workers in the UK. Pension rules introduced by the Conservative government outline that an employee is eligible for pensions benefits only after ten years of NI contributions. But Indian professionals often stay for less than ten years, still pay NI, and also pay social security back in India.

My view

The UK’s complaints about non-price barriers to trade in India were largely non-specific to the UK. They were ones that many other countries would have likewise raised with India. Many are intractable – allowing UK legal firms to operate in India, allowing foreign universities to open campuses – while other more technical ones require regulatory zeal in India to tackle.

Issues outlined by India were instead very specific to certain products. But if the UK has a soft Brexit and keeps harmonisation with EU laws in the trade in goods, most of these issues are unlikely to be resolved. They are discussions India should have with Brussels, than the UK.

Some anomalies might be straightforward to address – the Review gives the example of the EU Decision 2011/163/EU failing to understand that ghee, used in Indian sweets, does not contain milk as an ingredient.

The big elephant in the room in this report was immigration. Just a page was devoted to this out of a 52-page report. This remains, by far, the big issue as far as Indian exports of services to the UK goes. At the same time, if it was easier for Britons to work in India at least by providing clearer FRRO, both countries would greatly benefit.

Some of the issues the UK has highlighted in terms of non-tariff barriers in India show that India would benefit substantially from a light-touch and forward-looking regulatory approach. Such changes may not show up in World Bank Ease of Doing Business Rankings, but they will aid trade particularly for SMEs for whom the regulatory burden can be too much to digest.