India-UK FTA nears completion; potential boon for textile trade

The long-anticipated free trade agreement (FTA) between India and the UK, which has been under negotiation since 2021, is expected to reach fruition in the coming months. The comprehensive agreement, spanning 26 chapters, includes discussions on the exchange of goods, services, and intellectual property rights.

Analysts indicate that the UK is poised to gain substantially from the FTA, as several UK exports currently face high tariffs in India. The reduction in these tariffs could enhance the competitiveness of UK goods in the Indian market. India, despite having a trade surplus of $2.44 billion, is expected to benefit differently. Industries such as textiles, apparel, footwear, automobiles, and marine products, which currently encounter low to medium tariffs, could see a positive impact from the FTA.

The United Kingdom primarily imports knitted and crocheted apparel, as well as non-knitted/crocheted apparel, from India. Without the free trade agreement, these products attract duties of 9.33 per cent and 9.45 per cent respectively. This presents a significant challenge for India, which faces intense competition from China, Bangladesh, and Vietnam in textile exports. The UK is one of India's largest markets for garments and apparel exports, second only to the US. According to a report, the US, the UK, and the European Union collectively account for 50 per cent of India's garment export market.

Figure 1

Source: ITC Trade Map

The tariffs on knitted and crocheted apparel are highest in the US, as India is not included in the Generalised System of Preferences (GSP). In contrast, India benefits significantly in the UAE, owing to the Comprehensive Economic Partnership Agreement (CEPA) that extends to 90 per cent of all Indian exports, resulting in a zero tariff on garments. The advantage to the textile sector in this FTA will depend on whether it is included in the zero-duty category or if the duty is reduced by a certain percentage. Fulfilment of either condition would provide India with a competitive edge over its rivals, as the nation strives to maintain or possibly enhance its export levels.

Figure 2

Source: ITC Trade Map

India's textile exports, particularly in the apparel category, are expected to rise to the UK. With the agreement anticipated to come into effect in the next few months, these exports are poised for an increase.

Figure 3

Source: ITC Trade Map

Apparel exports in 2023 are projected to increase by 16 per cent for non-knitted or crocheted apparel and by approximately 7 per cent for knitted and crocheted goods, according to Fibre2Fashion’s market insight tool TexPro. The potential deal, which includes incorporating the textile industry into the zero-tariff line, could address concerns raised by the industry. Currently, under the Standard Preference Arrangement, India risks losing its preferential tariff rate of 9.6 per cent, as it is no longer classified as economically vulnerable by UK authorities. The successful materialisation of this deal could safeguard India's tariff rates, benefitting the textile sector.

The Indian Textile Industry is poised to benefit from the positive externalities of the FTA, resulting in reduced export costs and providing a competitive edge. The delay in the IMEA's materialisation emphasises the importance of a swift signing and implementation of this agreement, offering a much-needed respite for the industry. This development promises a reduction in textile prices and potential benefits for the local job market in the medium to long term.

The FTA, which aims to foster job creation and growth in both economies, would mark a significant milestone in the shared history of the two nations. However, negotiations face hurdles with India's firm stance on rules of origin and the UK's insistence on reducing Indian tariffs on its Electrical Vehicle (EV) exports, making the Diwali deadline appear unlikely.

If India succeeds in finalising this agreement, it will not only be a milestone but also a stepping stone towards forging additional agreements that could bolster its manufacturing sector and propel its ambition to become a global export hub.

ALCHEMPro News Desk (MI SR)