India-UK FTA: More liberal 'rules of origin' could lead to inequitable deal with EU, says source

The FTA between India and the UK, originally slated for Diwali 2022, is yet to be clinched.

India is worried about offering more flexible ‘rules of origin’ to the UK in its negotiations with the latter for a Free Trade Agreement (FTA) as it could dent New Delhi’s chances to ensure a more equitable deal with the European Union (EU), talks for which are also currently underway. This comes at a time when Britain is pushing for more liberal rules, a person familiar with the developments said.

The 'rules of origin' provision prescribes minimal processing that should happen in the FTA country so that the final manufactured product may be considered as goods originating from that country.

New Delhi is concerned that giving in to UK's demand for more flexibility on origin rules as part of the trade deal could limit India's room to negotiate on the same issue with Europe.

“If we give very flexible rules of origin to the UK then EU’s products may come in via the UK. Liberal rules of origin will let the UK send products with just some packaging changes that may lead to the EU not negotiating much on those lines when it comes to the trade pact with them,” the person said.

Six rounds of talks have been held till October 2023 on the India-European Union FTA talks. The latest round of negotiations covered 18 policy areas. Both sides have extensively discussed matters related to goods, government procurement, and rules of origin chapters, among others.

The bone of contention

India also wants origin rules in the FTA to ensure that London will not lean entirely on raw materials from other nations, especially on cheaper versions from China, this person told Moneycontrol.

“The UK wants more liberal rules of origin. They want to be able to source parts freely, which could mean they can even source the parts from China, which is cheaper. India is of the view that though the UK can source parts from other nations to a certain extent, some of it has to be manufactured in Britain itself,” this person added.

To be sure, India is ready to offer some leeway on the origin rules to conclude the highly-anticipated trade deal with Britain, however, New Delhi is of the view that “part of the manufacturing needs to happen in the country itself”.

“These countries (such as the UK) are complementary and not competitive mostly with regard to trade with India,” the person said explaining the rationale behind New Delhi’s agreement to offer some amount of flexibility on the origin rules.

In limbo
The FTA between India and the UK, originally slated for Diwali 2022, is yet to be clinched as the two sides continue to negotiate on a few unresolved issues, including Rules of Origin, London’s demand for tariff concessions on Electric Vehicles, and norms pertaining to services. There are 26 chapters in the agreement, which include goods, services, investments and intellectual property rights.

Officials from the Indian commerce ministry said on November 15 that India and the UK governments are "not working with any deadlines" when it comes to finalising the FTA and were instead working with 'timelines'.

According to Joint Secretary Nidhi Mani Tripathi, India's Chief Negotiator for the UK FTA negotiations, there have been "continuous exchanges at all levels" to iron out differences and the majority of the chapters are either closed or at the advanced stage of negotiations.

On November 13, External Affairs Minister S Jaishankar said he hoped India and the UK would find a "landing point" on the FTA which will work for both the countries.