Bilateral moment in trade relations
Negotiations on the Indo-UK Free Trade Agreement resumed post Modi's US visit, amid changing global trade dynamics and a shifting political landscape in Europe.
The negotiations on the Indo-UK Free Trade Agreement (FTA) resumed this week, coming shortly after Prime Minister Narendra Modi’s visit to the US, which, among other things, led to a pledge to work on a bilateral trade treaty. There have already been 14 rounds of dialogue on the Indo-UK FTA. The long pause was perhaps more on account of political instability in the Conservative Party government in the UK which ceded power to Labour last year than an inability to iron out differences in the deal which continue to exist. Still, it is important to acknowledge that the dialogue is resuming in radically different circumstances.
The re-election of Donald Trump as US president has resurrected US mercantilism and its utter disregard for multilateral trade rules with even more vigour than the first Trump administration. Given the US’s importance in the global economy, this is bound to force countries to change their terms of trade with the US. As countries turn bilateral in their trade approach with the US, it is only natural to expect that the multilateral system will continue to lose its relevance for extra-US global trade. When seen from that perspective the resumption of Indo-UK FTA talks might very well be the first among the many that could follow soon. These generalities aside, there is some merit in India engaging with the UK and the rest of Europe in a serious manner.
At least three points can be made here. One, Europe, as we have known it, is going to change for good. It will be forced to spend more on things such as defence. A modern economy always has backward and forward linkages between military and non-military sectors. This could open up greater possibilities than what exists today for both buying and selling goods from India’s perspective. Two, the Europeans, including the British, are increasingly willing to do business with the Chinese to fund their investment requirements and even seek technology. While India and China are not comparable economies anymore, a decision to not engage with Europe at all and give China a free pass will not serve our interests. Last but not least is the political climate in Europe and the UK. It appears on the cusp of a broad rightward shift. A strong economic relationship, rather than a rhetorical commitment to democratic and liberal values, is more likely to help maintain ties and protect Indian interests when politics shifts from the centre to the right.