UK-India FTA Bucks The Tariff Trend

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This summer sees the implementation of the eagerly anticipated UK-India Free Trade Agreement (formally the ‘UK-India Comprehensive Economic and Trade Agreement’ (CETA)). The agreement is expected to provide new opportunities for UK businesses. Signed almost a year ago following considerable public and political attention, the agreement has been undergoing debate and ratification in the parliaments of each country. Following this, despite a late-stage ‘wobble’ over the UK’s proposed steel trade measures, the deal is set to take effect from 15th July, more-or-less on schedule.

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The impetus for the agreement stemmed from the UK’s desire to develop closer ties with its main trade partners post Brexit, to mitigate the economic impact of leaving the European Union. One of which was India, one of the world's fastest-growing large economies in recent years. However, although a rapidly growing economic power in its own right, India has traditionally sought to avoid the alignments and entanglements implied by certain types of international agreements. This, together with the political power of certain domestic economic interests, meant that India was a cautious negotiating partner when talks formally began in 2022.

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However, the negotiations gained momentum last year with U.S. President Trump’s new approach to American tariff policy, which saw India among a number of countries singled out for particularly aggressive treatment, significantly affecting its short-term economic growth prospects. The changes in U.S. tariff policy and their impact on India gave the UK-India trade negotiations renewed impetus, as the incentives for each country to come to an agreement became more closely aligned. Consequently, the meeting of minds finally came just a few months after Trump’s Liberation Day tariffs were imposed, resulting in India’s first significant bilateral comprehensive agreement.

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The resulting ‘UK-India Comprehensive Economic and Trade Agreement’ (CETA), as its title suggests, is more than a conventional trade agreement. It covers trade in services, as well as in goods, and includes investment flows, digital trade, the movement of people, and aspects of wider economic co-operation. It also deals with sensitive market access matters, such as technical barriers to trade, intellectual property rights, the efficiency of customs controls, and certain standards, among others.

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What The UK-India FTA Means For The Trade In Goods

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The ‘UK-India Comprehensive Economic and Trade Agreement’ (CETA), whilst reflecting the scope agreed by both parties, builds on the extensive and longstanding ties between the UK and India, and establishes a clear legal framework for improving trade, economic and political co-operation over time, as international relations evolve.

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The agreement provides for the staged, annual gradual reduction of tariffs and increased market access between the two countries over the ten-year period following its implementation. The tariff commitments made by India and the UK are contained in schedules to the agreement and respect the sensitivities of each country regarding certain sectors, for example automotive and agriculture.

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The top goods currently exported from the UK to India are metals (including ores and scrap), power generation and transport equipment, machinery, and beverage and tobacco products. Among those imported from India are intermediate machinery and equipment, refined oil products, clothing, textiles, fabric and footwear, leather goods, electrical goods, medicinal and pharmaceutical products, organic chemicals, and certain food products.

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The UK-India FTA means that a wide range of such goods traded between the two countries, satisfying the customs origin rules and associated documentary requirements, will have tariffs eliminated from the outset, whilst tariffs on other goods will be progressively reduced over time, in accordance with the abovementioned schedules. As soon as the FTA comes into force, 64% of tariff lines should be eligible for tariff-free imports into India from the UK, while UK businesses and consumers should have increased access to a wider range of tariff-free imports from India.

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Tariff cuts highlighted by the respective governments include:

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• India: drinks, automotive, cosmetics, aerospace, medical devices, electrical machinery, confectionery, and other foodstuffs.

• UK: clothes, textiles, footwear, machinery, glass, ceramics, minerals, chemicals, vegetable oils, and processed foodstuffs.

(See UK-India CETA Tariff Commitments.)

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Takeaways

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Importers and exporters, together with freight and customs service providers, participating in international trade movements between the UK and India will be able to use the UK-India FTA from 15th July, but only if ready. The UK government is encouraging companies to prepare. To do so you should:

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• Familiarise yourself with the agreement and the commentary around it as soon as possible on GOV.UK and the websites of any trade association(s) you are a member of.

• Analyse the details of the agreement relevant to your business and prepare operationally, in consultation with your business partners, to trade under the new arrangements from 15th July.

• Establish what the tariff reductions will mean for your goods, supply chain(s) and customer(s).

• Understand the product-specific rules of origin for your goods to establish whether they qualify for the new tariff preferences. Check that your supplier(s) can support the customs origin and document requirements.

• Seek to participate in UK-India FTA awareness events to better understand the potential benefits of the agreement to your business.

• Obtain any trade facilitation available under the agreement, as applicable. For example, UK-based exporters planning to complete origin declarations for exports under the agreement should register with HMRC (see HERE).

• Consider what professional support you might need to make use of the agreement’s provisions.

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How BKR Can Support

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We at BKR have a lot of experience in using our expertise to work with clients to help them to make the most of the preferential trade agreements of the markets where they do business. We can support you in relation to trade agreements such as the UK-India FTA by:

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• Using our special software tool to audit and analyse your customs declaration data to identify opportunities there may be for you to import at reduced or zero rates of customs duty and/or to recover duty already paid, based on applicable trade agreements and their rules of customs origin.

• Supporting you in any customs duty reclaim you may be entitled to make, based on trade agreements that may apply to your goods / markets.

• Reviewing the customs commodity codes you are using, the customs valuation calculations you are making, and applicable customs origin requirements, to provide you with an objective assessment as to their correctness.

• Working with you to review, and where necessary improve, your customs processes, procedures, and documentation to comply with the requirements of particular trade agreements and to properly evidence preferential customs origin.

• Providing tailored technical customs origin (preference and non-preference) training for your business, to enable you to confidently analyse any preferential trade agreement and identify benefits.

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