15
Examination of witnesses
Alessandro Marongiu, William Bain, Paul Alger and Professor Sangeeta Khorana.
Q12 The Chair: We are now ready to launch the broadcast. We have up to an hour of oral questions. I am delighted to see that William Bain, head of trade policy at the British Chambers of Commerce, has joined us remotely. Also with us are Alessandro Marongiu, head of trade policy at the SMMT; Paul Alger, director of international affairs in fabrics and textiles; and Professor Sangeeta Khorana, professor in international trade policy at Aston University. We are incredibly grateful to you all for joining us. This is one of several sessions we are having on the Indian trade agreement, and we are not quite half way through it, so you are bringing this fresh.
Without further ado, we will launch into questions. I am going to ask the first question, in particular for Mr Bain and Ms Khorana. What is your overall assessment of the value of this deal for business and industry? Can you just give us a little background of what you think? In particular, what sectors do you think will gain most, what sort of size of value could this be, and what are the potential implications for greater British industry with the inward investments? Shall we start with you, Mr Bain?
William Bain: Thank you very much indeed. It is a pleasure to be able to join this afternoon. The BCC sees this deal as highly significant for the UK economy as part of a wider economic shift towards the Indo-Pacific region. By 2050, India, for example, is forecast to have 250 million middle-class consumers and capacity for imports annually of £2.8 trillion per year, and most economic growth in the world by the middle of this century is going to come from this region of the world. It is an important engine of export growth now and is really critical for future economic growth that this deal was done. The deal boosts key sectors such as food and drink, automotive and pharmaceuticals and key services sectors such as health and medical services, and it also raises the potential to boost investment in AI here in the UK as well.
The Chair: Can you amplify on what you mean by potential to boost AI? It is rather a sort of all-embracing sentence rather than specific.
William Bain: The recent trade mission, which the Prime Minister led and on which our director-general, Shevaun Haviland, represented the BCC, found some clear opportunities in the willingness of Indian companies involved in computer services to invest in the development of AI here in the UK. We have seen recent inward investment from the United States in the UK in this sector, and I think we can have confidence that the strong platform this agreement gives can create the same potential for increased investment in world-leading AI services data centres here in the UK as well.
The other point I was going to make is that India is the UK’s 11th-largest trading partner by individual country already: we have £44 billion-worth of bilateral trade each year. The agreement, I think, has the potential to raise our exports by 60% by 2040. This can be a real engine for delivering economic growth for the UK, and the BCC backs this agreement without reservation.
Professor Sangeeta Khorana: Mr Bain has already laid out the landscape by talking about trade statistics, so I will try to look at it more from the perspective of businesses, as to how they would benefit from this trade deal.
First, I would like to mention that this is a very significant trading partner for the UK, and a very significant trade deal after having left the EU. Mr Bain has already spoken on the size. Let me talk about tariffs that will go down as a result of this trade deal. We know that India has and has always had high average tariffs, roughly in the range of 12% to 15%. As a result of the trade deal, tariffs will come down eventually, which then means that British businesses will be able to access a market which is growing and has the largest middle-class body.
I would also like to mention here that this is particularly important in the era of protectionism, because we know that businesses are navigating a highly uncertain geopolitical landscape, and a deal with India will enable businesses to have much more resilient and robust supply chains and enable them to not just bet on one region as the main supplier, which will lead to a diversification and much more robust and reliable supply chains for British businesses.
Having said this, I think the deal will bring significant benefits for SMEs as well because, as I understand it, customs processes will be simplified and digitised, and trade processes will also be simplified, which means that SMEs which have so far had to navigate a very uncertain regulatory environment in India will be able to reduce their costs. It is hugely beneficial for businesses, and hence I say it is a monumental deal for British businesses.
The Chair: Mr Bain, you said we do £44 billion of trade with India. As a result of this deal, what do you anticipate that going to?
William Bain: If you look at the Treasury assessment, our trade in goods by 2040 could rise by £17.5 billion or 60%. There is a significant uplift, as was just set out there, from reducing tariffs on things such as Scotch whisky from 150% to 75% initially and to 40% by year 10 of the agreement, tariffs on wind turbines and green technology falling to 3% under the agreement, and a significant fall in tariffs on automotives. All this liberalisation makes it significantly easier for British companies to penetrate the Indian market at a time when India’s prosperity is growing and its desire for imports is growing as well.
The Chair: That is only £1 billion a year, by the way. Would you like to say a few words, Mr Marongiu?
Alessandro Marongiu: I thank you, Lord Marland, and the committee for the invitation to the SMMT. I would agree that the UK-India free trade agreement is a landmark deal, certainly for the UK automotive sector. Today, British-made finished vehicles, parts and components face very significant tariff and non-tariff barriers when imported into India. This has resulted in a systemic underperformance of our bilateral trade relations. Just 0.1% of all exports of UK-assembled cars go from the UK to India today. We have not imported finished Indian-assembled passenger cars since 2021. In terms of parts and components, we import about £100 million-worth of typical automotive parts from India, and we export about £73 million-worth of typical parts from the UK to India. Clearly, there is a huge potential that is currently untapped, and this deal can potentially open very significant commercial opportunities, as it partially liberalises the Indian automotive market, at least for finished vehicles, for the first time ever. India had never agreed to something like this before, so it is an historic step in India-UK trade relations. However, this is a highly complex deal. It presents some significant compromises. I guess we will have time to also look at where the agreement falls short—
The Chair: We will come to that later. That is very good.
Q13 Lord Hannay of Chiswick: You gave an assessment which was very positive and which you have all backed up with some facts and figures, but you have not mentioned a single word about the increased competition for our industries from Indian exports to the UK market. Surely, unless the Indian negotiators were simply operating like Father Christmas, handing out presents to the British economy, one has to assume that they have an assessment which gives them better competitive conditions on our market. Could you balance what you said about the positives, which I am not wishing to contest at all, with what I would not call negatives? British consumers will, of course, benefit often from better access for exports.
Alessandro Marongiu: In terms of current competition from India, we have to say that it is pretty limited. As mentioned, we have not imported any finished passenger cars since 2021. At the moment, I would say that competitive pressure on domestic manufacturers of finished vehicles is fairly negligible. However, the industry has highlighted defensive interests throughout the negotiations that had to be defended. On the final outcome of the deal, we recognise that the UK Government have taken steps to deliver on some of those defensive interests, in particular when it comes to protecting domestic manufacturers of electrified vehicles. For electrified vehicles specifically, it is the only sector across all manufactured goods that will see imports from India, on a preferential basis, capped to a certain volume limit. This can give time to domestic manufacturers as well, to be ready for additional competition if Indian manufacturers decide that they have a business case to export to the UK. They do not have that business case right now; they do not see it. They might have it, but they do not see it at the moment. They very well might and, somehow, we hope that they will see a case for additional exports from India to the UK.
The Chair: That is excellent. Thank you. I will ask Baroness Verma to ask a question, but when you are answering, perhaps you might recognise Lord Hannay’s question in your answers, because we would like to explore that further.
Q14 Baroness Verma: I start with the question you will have probably had sight of earlier. Which liberalisation measures will benefit UK businesses in your sector most—this is predominantly to the sector witnesses here—and are there more barriers that could be lifted? If so, what are they, and should the Government seek to remove them? I also have a wider question, following on from just listening. Talking to the university sector, the difficulties have been apparent in the UK Government changing from the two-year stop to 18 months. Going forward, do you think that the visa issue will impact on trying to get some of the talents that we want from India to come over here? You will have time to think about that, because we are about to go and vote.
Sitting suspended.
The Chair: Thank you for your patience.
Paul Alger: Thank you for your question. I should probably start by saying that fashion and textiles are one of those industries where there is a very stark difference in the benefits to the UK from an import point of view. It will be very interesting, and we may get to talk about this later, to see whether UK retailers importing from India pass on the 12% or 8% benefit to consumers, which is what was intended, or whether they decide to keep it in their back pockets, so to speak.
From an export point of view, the agreement is of limited use to fashion and textiles, partly because the Indian market tends to work on very low margins. Prices in India for garments, even designer products, for example, tend to be 70% of world prices. The vast majority of UK exporters to the country find, for that reason but also because of the various non-tariff barriers which India traditionally is very good at levying against international businesses, that they manufacture in India or Sri Lanka in order to be able to trade. We see less impact there, I would say. Certainly, we have remained very concerned throughout the negotiation period—and the Government have listened to our concerns—that there are not just federal but state non-tariff barriers, for example around dye in textiles.
While the UK Fashion and Textile Association broadly welcomes the agreement, we recognise—in answer to Lord Hannay’s question earlier on—that there are some very important challenges to UK manufacturing. This is particularly in textiles; I would say less so in ready to wear. Ready to wear from India coming into the UK traditionally used to be manufactured frequently in China, and we have seen over the last four to five years that British businesses have been bringing their manufacturing out of China and into India. This deal will make that easier and a lot cheaper but, for our exporters, I suspect that will make life quite a lot more difficult.
The Chair: Professor Khorana, would you like to give us a sort of global view to Baroness Verma’s question?
Professor Sangeeta Khorana: The kind of liberalisation measures that the benefits of the deal are reaped by businesses are addressing non-tariff measures. Tariff measures have been addressed as part of the deal anyway, but non-tariff measures are the elephant in the room that really need to be addressed.
Of late, you would have seen it reported in the newspapers about the quality control orders that India has come up with. Quality control orders are nothing but a form of non-tariff measure. Essentially, we should be thinking of addressing non-tariff measures, not only conventional ones such as TBT, SPS, licensing or price control but quality control orders, because these are being increasingly used by the Indian Government on grounds of quality and consumer standards.
If you look at how they have evolved over the years, in 2010 there were just 14, and they have now gone up to 187 products being covered. If you look at the tariff lines, only 80 were covered 15 years ago; of late, from 2020-21 onwards, we see that there has been an explosion in the number of quality control orders, and we now have 978 tariff lines—that is by no means a small number. A lot of British businesses are likely to be impacted as a result of these measures, which are being put in place by stealth on grounds of quality control. The Indian standards are very different from the international standards. If you ask me about liberalisation measures, these are the kind of measures we should be looking at so that businesses can benefit.
Q15 Lord Boateng: What is your assessment of the rules of origin provisions in the agreement? To what extent do they adequately support industry supply chains? You have made reference to the garment and fashion industry, but I suspect that it goes beyond that.
Paul Alger: Yes. The rules of origin in the UK-India agreement are among the most liberal that we have seen. Indian businesses will automatically qualify for, we would expect, 90% of their production. The UK technically will qualify for a lower percentage, because we have a much more global supply chain, but the rules of origin are good. I think that the problem will be the UK supply chain. We see this in most negotiations where the UK is coming at it as a high-tax, high-income, high-minimum-wage country selling to a lower-wage country: the UK will be substantially less competitive.
On the threat side, I would say that our biggest concern lies in British textiles. Wool textiles—in particular, those from Yorkshire, Lancashire and Scotland, for example—are likely to face more competition because Indian businesses will be able to compete even more competitively than they have done before.
Lord Boateng: Can I explore that with you? Harris tweed and Burberry, say, are not going to be adversely affected by this agreement, are they?
Paul Alger: No. Harris tweed, which is obviously a textile protected by an Act of Parliament, will not be affected. Our biggest challenge—I know that this is likely to come up as a question—is going to be getting those companies into the market in the first place. Harris tweed will not be affected, but a lot of our northern English and Scottish woollen textile companies will certainly find that the Indian manufacturers will be gearing up both to replicate some of those textiles and to start selling them into the UK marketplace competitively. There is a threat to British jobs, I would say, from that point of view.
Alessandro Marongiu: From an automotive point of view, we agree that the FTA sets some of the most liberal rules of origin ever agreed by the UK, with the exception of the deals with Australia and New Zealand. The agreement for passenger cars sets a requirement to add 35% British and Indian value to be able to unlock preferential tariff treatment—that is, reduced tariff rates.
For manufacturers of traditional internal combustion engine vehicles, it is likely that this threshold could be attainable. For electrified vehicles—hybrid cars of all types, as well as fully electric vehicles—this threshold might be slightly more challenging. However, in essence, the deal sets a five-year stop to liberalisation for this type of vehicle on both sides. That could give some time for domestic manufacturers to build a supply chain—a battery supply chain, in particular—that could help us meet these origin requirements and unlock preferential treatment for electrified vehicles on both sides.
I would just add a note on parts, components and other finished vehicles, in addition to passenger cars. Other finished vehicles are subject to a more demanding rule of origin, which might be difficult to achieve: 45% UK-Indian content is not easy for commercial vehicles, buses and others. For parts and components, it is more in line with past precedents so it is probably a mixed bag, with some manufacturers able to meet the 40% value added requirement—or a so-called change of tariff heading—with others in a little more challenging spot.
Q16 Lord German: Can you comment briefly on the double contributions convention? I understand that it has frequently been used in FTAs, but do you think that there is a balance between the ability to access these payments in both directions? Who do you think will gain most from it?
William Bain: It is interesting. The UK already has 47 of these double contributions convention arrangements in place with other partners, including the US, the EU, Japan, Canada, Switzerland and South Korea. Overall, having reviewed the terms of what has been agreed, we think that they are fair. They seem to be reciprocal and to facilitate that exchange of staff, which is an important part of this agreement. Intracompany transfers—experience of the other market for a defined but limited period of up to three years—are important for the economy in high-skill, high-knowledge sector jobs.
In essence, this agreement extends the 52-week arrangements for detached workers, as they are defined in the agreement, from India to three years, but only for a maximum of three years. We think that, if there is an intent to try to get round the terms of the agreement by intending to stay for a much longer period than three years, there are sufficiently robust processes in the agreement to capture and prevent that. This is really important for businesses. As we are going to grow our footprint of UK companies in India, it is vital that we have this measure in order to ensure that employees do not have to make double contributions.
Q17 Lord Howell of Guildford: I will ask my question in two forms. First, as the negotiations proceeded and at the time of the preparations, did you get guidance from our Government—who have a view on India as part of the Commonwealth, of course, and a general view of the rise of India, which is described with phrases such as “embryonic capitalist superpower”—as to how much importance they placed on success in the negotiations? Did you also get guidance from them on ancillary associated flows such as investment, which is of course a very important feature, and on things that were not actually in the treaty at all and had been cut out of it—namely, some controversy over Indian immigrants and over the history of Indian defence negotiations, such as where it was getting its weapons from? Did you talk about these things and this context with the British Government before you went into the negotiations? Did you get good direction from them?
The Chair: Those are two or three very good points. Mr Bain, do you want to cover what you can? We will then ask others to contribute on the ones that you cannot.
William Bain: These negotiations have been a very lengthy process; indeed, they have spanned two successive Governments. Our discussions with the Government were extensive. Some were conducted on a general basis; others were conducted under non-disclosure agreements that organisations have with the Department for Business and Trade.
Throughout, I would say that the work of DBT was extensive. We were given access to text under NDA, which was useful for looking at the implications. Some of that text was in draft so we were able to make comments, which were, we hope, able to feature in the UK’s negotiating position. The engagement was extensive: it has spanned a three-year period.
Perhaps one of the elements going forward is for the Government to learn the lessons from this and to make sure that, in all trade agreements, business has, in effect, the equivalent of room-next-door access. We have the insights, the data and the contacts on the ground that can show the best place for the UK to go in adopting positions on rules of origin or tariffs. Making more use of that in future negotiations is something that we would very much recommend.
The Chair: Specifically on Lord Howell’s excellent points, to what extent were immigration and defence covered?
William Bain: Clearly, there were two stages of the negotiation. First, there was what happened under the previous Government, where issues such as legal services were being considered. There were perhaps attempts to obtain additional market access on services. The context for both countries this year is that, faced with an evolving trade policy landscape with tariffs increasing—the highest average US tariffs since 1934—a new dynamic entered the negotiations, which is to try to future-proof our bilateral trade. Some issues that had featured prominently at early stages were perhaps not so prominent as we neared an agreement. These are areas that we can come back to in future.
The Chair: Can you give us an example?
William Bain: Clearly, in terms of services market access, there is little that is new in this agreement, and no provision is made for legal services. These are areas where both sides decided this year that the imperative of reaching a deal to produce these benefits, particularly given the global tariff climate, took precedence over some of the things that business groups and other stakeholders would have liked to see at earlier stages of the negotiations.
Alessandro Marongiu: On engagement rather than defence and immigration, I differentiate between engagement with individuals with confidentiality agreements and engagement with broader industry. In terms of engagement with individuals who had signed confidentiality agreements, they have been consulted regularly and had direct access to the negotiations. It did not go as far as seeing the draft text of the deal, though. A lot of signatories were presented chapters that had already been closed, without much chance to influence the draft itself. However, I should flag that minimal information has filtered through to the broader industry representatives who did not have confidentiality agreements in place, at least when it comes to the automotive industry, and only at decisive moments of the negotiations. That created at least two distinct moments where there was the need to intervene last minute to change the trajectory of the negotiations. Again, that does not undermine the value of the deal; it is entirely procedural.
The Chair: That is a very interesting comment.
Lord Howell of Guildford: To follow Mr Bain’s rather positive answer about guidance from our Government, was there, at any point in the guidance for how we were to go about these negotiations, any suggestion that we should be a little more concessionary because of our history? Although I think Indian GNP is now greater than ours, Indian per capita income is miles below ours. It is still a developing country—it is in chrysalis, in embryo—so, in addition to negotiating for our trade and interests, we should bear in mind the problems of a developing country and a developing investment pattern. Also, a new phenomenon in the last five years has been an awareness among the public that Indian investment and influence here in Britain are very large. That is a completely new conception coming into the public mind. Does that come into your guidance and discussions?
William Bain: There was no context of looking at the relationship that the UK and India had 80, 90 or 100 years ago; it was an acknowledgement of the here and now. India is a significant global power economically now, and it will become a larger economic power in the future. The discussion really was between partners as equals, not with any of the historical connotations from 80 to 100 years ago. As I say, the discussions that the Government had with us were predicated on how we could make a difference to economic growth and exports now and, given the changing characteristic of India becoming even more prosperous, how can we nail down terms that will benefit our exporters for the future?
Q18 Lord Hannay of Chiswick: Can we look a little further ahead? Most of the questions were related to the short-term impact of the terms that have been negotiated between India and the UK, but perhaps you could put the questions I want to pose in a timeframe of the medium to long term, because this agreement is meant to last—it is not a short-term agreement but a lasting one. First, do you anticipate any challenges arising out of this agreement or any issues that could make its benefits less positive than you have hitherto indicated? I am thinking a bit about quality control, which sounded to me like a considerable risk factor. To what extent does the agreement enable the UK side to handle and reduce that problem?
Secondly, the Indian Government have just announced a Diwali tax package. Do you, at first glance, think that could increase the benefits that UK exporters would get from the agreement? That is an interesting point that I think should be covered. What sort of mechanisms do you think that the British Government should be using to monitor, on a continuing basis, the balance of advantages between the two sides to this free trade area agreement and ways in which, if they got out of kilter, they could be restored to a reciprocal balance?
Professor Sangeeta Khorana: On your point about the challenges and how they can be managed, it is important to have monitoring mechanisms in place and to have a body that is the eyes and ears of the British Government, listening to British businesses about what is happening on the ground. To give you an example, the EU has set up a business organisation called Federation of European Business in India. Its job is just to listen to businesses and then feedback about what issues the businesses are facing in the country. It may be an idea that we have mechanisms in place which work as early warning systems, picking up all signals from the ground, and those are then assimilated and discussed within the context of the free trade agreement, because we require monitoring mechanisms in place on a regular basis.
With regard to the GST, what the Indian Government have done is phenomenal. The GST initially was very complicated; it was a four-tiered system but has now become really simple, just two-tiered, and that has been implemented in 2025. In my opinion, it is important to mention that tax reforms make a country much more open to businesses. It is a signal to multinationals: “Hold on, we are making our GST system simple and it is no longer as cumbersome and complicated as it used to be”. This will essentially cut costs for British businesses, it will increase the ease of doing business in India and, most importantly, market efficiency will be higher, which means that businesses, whether Indian or British, will benefit from the reform of the GST system.
Lord Hannay of Chiswick: Would I be correct in interpreting your answer relating to the mechanisms that the EU has for measuring the impact on EU-India trade as being that you do not think the present systems that exist in this country—the UK—are sufficient to do a medium-term to long-term monitoring job in the period ahead?
Professor Sangeeta Khorana: It is not a comment on whether the systems in place are adequate or not; I just wanted to signpost and inform as to what the EU has done. It has done something similar for the Vietnamese trade deal. It has done something in China where it has set up a federation, which is essentially speaking to businesses and picking up what is happening. I am not aware of an organisation or a trade body of that nature which is being funded by the British Government.
Lord Hannay of Chiswick: Could you or one of your colleagues perhaps in fact answer the question of whether the monitoring arrangements that the UK Government have in place are adequate?
Paul Alger: I have not seen any from our side, but the general perception is that the UK is a low-intervention country and other countries that we compete with are more interventionist and quicker at market surveillance than the UK perhaps is.
Alessandro Marongiu: On measures of success for the medium to long term, on monitoring, our expectation is that India will figure among the top five export destinations on a regular basis. If this does not happen, it probably means that the measure of success has not been met. The deal sets a quota of up to 37,000 units to be eligible for a reduced tariff rate of 10% five years from it entering into force. If we look at today’s export flows of UK passenger cars, that would put India as the fourth-largest export destination market for UK-assembled vehicles. But this requires UK manufacturers to be able to fully utilise this quota. It is not easy—in planning, in changing volumes from one year to another, or in the shift in power trains from traditional internal combustion engine vehicles to electrified vehicles from year 6. The utilisation of this deal should be monitored accurately and on a regular basis. We know that the UK Government, for example, have recently published data on tariff preference utilisation rates in trade with a number of countries. We would like to see that for India as well, and that requires co-ordination, for sure, with Indian authorities.
The Chair: To Lord Hannay’s point, it is interesting that there is not a body that is going to monitor this.
Professor Sangeeta Khorana: Not to our knowledge.
The Chair: Do you think this is something that should happen?
Lord Hannay of Chiswick: You answered the question about the steps the Indian Government took a couple of years ago with the generalised service tax—the GST—which clearly has been positive for those who are trading into India. But my question also related to the tax package announced just last week by the Indian Government. Is that more positive news, or is it not very important?
The Chair: Mr Bain, you are looking friendly and wanting to speak.
William Bain: Certainly, reducing the headline rate of GST to 18% is going to be a boost for exporters to India. It will lower the costs and make it more likely that consumers are in the mood to buy. One of the trade barriers that members most frequently raise with us is, of course, sales taxes, which can have a state dimension as well as a federal dimension. We will be monitoring that very carefully as this agreement begins to roll out, we hope, from the middle of next year. I think we would see these tax reforms, on Lord Hannay’s question, as beneficial and helpful.
The Chair: Lord McDonald has joined us. We welcome him, of course. Carry on, please.
William Bain: In terms of Lord Hannay’s other question, which was about the capacity of the UK, in particular the UK Government, to monitor what success looks like in this agreement, there are currently 9,000 companies that export to India, and the BCC wants that number to grow. We think this agreement should be used as an engine to leverage more companies being able to export into this great market. One of the things that we called upon the Government to put in place a couple of years ago—we are pleased that they did—is a utilisation unit within the Department for Business and Trade, which now pulls together data on how FTAs are being used and on how many companies which could be using them to expand their exports are in fact using the preferences. We want to make sure that that unit is adequately resourced, with personnel and assets, to be able to carry forward the work it has done with the Australia trade agreement into this agreement as well. The success of trade agreements is not how many pages you manage to negotiate but how many companies use them as an engine.
The Chair: I think Lord Hannay has made a very good point about this monitoring.
Baroness Verma: I wanted to follow on from what Mr Bain said. Grant Thornton does exactly that: reporting to the UK on what Indian businesses are doing here, their growth and the level of business expansion. Something like that would be very useful for British businesses to be able to get the other way around. If Grant Thornton can do it from that side, we should reasonably be able to find a similar sort of mechanism this side.
Q19 Lord German: That segues very neatly from the question where we just talked about the utilisation unit. We are looking in this question at what more can be done to support British industry and British businesses to take up the opportunities that are there. In answering that question, could you perhaps also reflect on what happened in previous FTAs and whether there is an experience in previous FTAs of support and protection for British industry which can be transferred into what we expect, and would expect, to happen for British industries?
The Chair: Professor Khorana, would you like to give us an overview on that? Then we will talk specifics.
Professor Sangeeta Khorana: It is interesting to note that I will now go back again to the EU. In my opinion, the EU has done brilliant work in negotiating its trade deals, implementing them and monitoring them all the way through. The EU does periodic reviews of the trade agreement: what has worked and has not, and what can be done to ensure that the trade agreement works. If you ask me, this is something the British Government should be looking to do.
Secondly, and most importantly, the EU also does a lot of capacity building in emerging markets and developing countries. The objective is that the trade essentially grows in both directions. This is one more point that the British Government can take away: do capacity building of exporters, like the EU does, on how to use REX.
Similarly, the British Government can do some kind of training initiatives. They can have periodic reviews and joint consultative committees. This would be very useful to see agreed within how the trade deal will be operationalised, implemented and monitored. As Mr Bain said, it is not what is written and how much paper we have used but how effectively British businesses or Indian businesses have been able to access each other’s market, because the deal is based on the premise that it will allow enhanced market access to businesses on both sides.
The Chair: Do you want to add to this on a specific basis? I should say that Lord Fox has just joined us, for which we are very grateful.
Alessandro Marongiu: I will go first. Just to go back to non-tariff barriers in the automotive industry, these can be very significant. The agreement does not offer an automotive annexe addressing regulatory barriers. On support that the Government could offer to address non-tariff barriers in India, there was the recent announcement of the launch of the Ricardo fund, which could be utilised as well to support tackling some of these barriers. Let me give an example. At the time when the deal was formally signed, if the deal had come into force the day after the announcement, some of our manufacturers would have not been able to use it at all, regardless of tariff cuts. So putting a lot of focus on non-tariff barriers is absolutely crucial to making sure that businesses can actually utilise the agreement.
I would also highlight the need now for co-ordination on origin formalities. This deal sets origin formalities that are exceptionally different as compared to most common precedents, particularly for imports into India of UK-produced goods. It requires co-ordination between HMRC and Indian customs to make sure that exporters will have an appropriate reference number and that the records match each customs authority’s, so that they can benefit from tariff reduction. If that system is not in place, no one will be able to claim preferential tariffs on imports into India.
Paul Alger: From my side, trade agreements are always the beginning of the relationship, rather than the culmination of it. Therefore, what the Government do next will be very important. At the moment, we do not have a particularly robust trade promotion policy towards any of our FTA countries. The occasional Minister-led or Prime Minister-led visit is a good start, but we need a lot more beyond that.
I should also add that there is a conception in government—I have seen this before—that businesses are not using our free trade agreement. That often comes down to the fact that, because of their supply chains—I alluded to this earlier on—certain businesses do not meet the rules of origin in the UK’s agreement with a particular country. However, I know that, once the EU has made an agreement with India, a large percentage of my members will qualify under the terms of the EU-India trade agreement; our UK manufacturing members will clearly benefit under the UK-India free trade agreement.
So, in looking at trade agreements, we have to be careful about understanding exactly what they mean for businesses—particularly in industries such as ours, where the majority of them are small and medium-sized, family-run businesses.
The Chair: We are lucky to have Baroness Lawlor joining us—from the Royal Albert Hall, it looks like, but under an umbrella. We will carry on guessing unless you tell us, Baroness Lawlor.
Lord Boateng: St Pancras station, I think.
Baroness Lawlor: I have just arrived. I am sorry; I was listening throughout.
The Chair: I think it is St Pancras. Lord Boateng was right, as usual.
Q20 Baroness Lawlor: I want to go back to the rules of origin. Mr Marongiu, you mentioned that there will be much better rules of origin for exporters in both countries. In a sense, though, you qualified this by saying that India would be much more likely to meet them, given the non-diversified supply chains that it has. In practice, does this not mean that it will be very hard for the UK to increase, say, the motor trade, which you represent, given its very diverse supply chains and given that the procedures for importers to follow will vary? Perhaps you might like to say a word about the different procedures, because I am not aware of other trade deals that have different procedures for importers depending on which country they are in.
Alessandro Marongiu: In terms of the ability of Indian and UK manufacturers to meet product-specific rules of origin, in principle India has a very extensive supply chain. It produces more than 4.5 million vehicles a year. Obviously, these numbers are fairly significant to UK domestic car production, for example, and to the British supply chain.
However, while Indian producers are likely to be well placed to meet product-specific rules of origin, the deal sets fairly facilitative rules that I expect could be met, at least on day one, by producers of traditional internal combustion engine vehicles. Hopefully we will be able to meet similar rules for electrified, hybrid and battery electric vehicles after five years when actual tariff preferences will be made available for these types of vehicles on both sides.
On origin formalities, essentially there is a dedicated annexe describing a complex authentication process going well beyond traditional authorisation mechanisms set by previous FTAs. Many details of that process have yet to be agreed but they must be in place before it enters into force, otherwise it will not be possible for UK-made products to benefit from preferential treatment at all.
UK exporters and producers will need to notify UK customs of their intention to produce origin declarations to trade with India, and will receive a unique reference number. UK customs must share relevant information, as agreed by the parties, with Indian customs, to allow Indian customs to identify the UK exporter or producer. Then the UK exporter must send the origin declaration to a nodal email address of the customs authority of India and the email address of the Indian importer within the same email. The Indian importer can claim preferential treatment only after being notified by Indian customs that the record of the UK exporter matches the record of the Indian database. It is fairly complex.
The Chair: Thank you; that is an excellent and interesting response.
Q21 Lord Boateng: Do you foresee any risks associated with concluding a deal with India in terms of future trade relations with other key partners, and how could they be mitigated? To what extent have the Government retained sufficient flexibility for the UK to secure access to other markets?
William Bain: I think the agreement is pretty much future-proofed in its terms. There are no commitments such as MFN clauses on services, because there is not a great deal of additional market access in services. The UK has not had to change its food standards or any other regulatory standards to get this deal over the line or to see it function properly. So in that respect there is clear scope for the UK to make further FTAs or to adopt closer trade relationships with other key partners if it wishes. There is no impediment in this agreement to that agenda.
Fundamentally, what our members want to see—we have surveyed them twice already this year and are currently surveying them again over their trade priorities—is for the UK to get the best trading terms possible in the Indo-Pacific region, in the European neighbourhood—perhaps including the Middle East as well—and with the Americas. We do not see that anything in this agreement prejudices that aim.
Paul Alger: I agree, but I add that our concern throughout this process has been that the UK-India agreement undermines in some ways the UK’s developing countries trading scheme relationships with countries like Pakistan and Bangladesh, with which the UK is trying to encourage better working standards, for example. The agreement by no means precludes us from doing other agreements with other countries, but we should recognise that our GSP and DCTS arrangements are going to be put under some pressure.
The Chair: Thank you very much. That was a very interesting session, and we are grateful to you for sparing the time. I take away several things: a room next door, which Mr Bain mentioned, would be very useful; the draft text not being seen is quite critical; some form of monitoring process and a periodic review, à la the European Union, which Lord Hannay would be thrilled about; co-ordination of origin formalities needs to be sorted out; and a trade promotion policy. There will be other things that everyone else in the room has gleaned, and which will be brought up in the text.
On behalf of us all, I give grateful thanks to the Chairman for joining us all the way from Hong Kong. I thank our witnesses for sparing the time. This has been very interesting and constructive, and hopefully some of the things that come out in our report will reflect your concerns and the confidence. There is no question but that this is a very good step in the right direction.
