Chlorinated Chicken Impasse: Lessons For India In Its Trade Deal With U.K.
Should India focus on non-tariff barriers in its trade deal negotiations with the U.K.?
India has a lesson to learn from one of the sticking points in the U.S.-U.K. post-Brexit trade deal negotiations. U.S. chlorine-washed chicken imports offend British sanitary sensibilities, as Bloomberg reported last year, indicating that the U.K. will not compromise on food standards in its trade deals.
U.K.’s Department of International Trade, in a policy paper outlining its strategic approach to a free trade agreement with India, has emphatically said it will not compromise on quality and testing requirements.
"The UK’s reputation for quality, safety and performance is what drives demand for U.K. goods and is key to our long-term prosperity. The government has no intention of harming this reputation in pursuit of a trade deal”. - Department of International Trade, U.K.
This could become an issue, Kevin McCole, managing director at the U.K.-India Business Council, said in an interview with BloombergQuint. My expectation is that there will be a set standard from day one, he added.
Negotiations began between the U.K. and the U.S. on a trade deal when Donald Trump was President. One of the issues that was most commonly discussed was different standards for chlorinated chicken, with the consumer groups in the U.K. saying you cannot lower our food standards. So, I think seeing that it was an issue for U.S. talks, I can imagine the same issue for Indian discussions.Kevin McCole, MD, U.K.- India Business Council
It's some of these non-tariff barriers that are critical for India.
Should India Focus On Non-Tariff Barriers?
The simple average tariff on goods exported to India from the U.K. is 14.6%. While for goods imported by the U.K. from India, it is 4.2%, as per DIT data.
So tariff reductions are likely to benefit the U.K. more than India, Sunitha Raju, professor at Indian Institute of Foreign Trade, told BloombergQuint.
Look at India's agriculture exports to the U.K. in the last 10 years - absolute value-wise, it's increased, but as a share of total exports, it has halved.
The non-tariff barriers (NTBs) are far more restrictive and subjective. What is the level that is acceptable for human consumption? Countries have the flexibility to deviate from WTO-suggested standards. The impact of NTBs is difficult to quantify. For instance, ban of chilies from India to the EU, either you prove you're compliant with their standard or incur the compliance cost to overhaul the production chain. So, some NTBs have become a protectionist measure for developed countries.Sunitha Raju, Professor, IIFT
The solution is to negotiate Mutual Recognition Agreements that lay down clear, acceptable standards for both parties, Professor Raju pointed out. Of course, Indian businesses, specially agriculture exporters, need to better their product quality as well, she added.
In 2020, India received 476 RASFF notifications for food products originating in the country. Of which 296 were for high levels of unauthorised pesticide - ethylene oxide - in sesame seeds. This is as per data compiled by the European Union under its Rapid Alert System for Food and Feed (RASFF) regulations, that flag food safety risks to non-member countries as well.
A policy paper by Indian Council for Research on International Economic Relations estimates that India received 34 notifications in 2020 from the U.K. on sanitary and phytosanitary (SPS) issues for imported food and drink products. SPS is a measure for food safety and animal, plant health.
For now, India and the U.K. have agreed that sensitive issues are not a priority. The aim is to capture opportunities where possibilities are immense, Minister of Commerce and Industry Piyush Goyal had said earlier this year when India and the U.K. finalized the terms of reference for the FTA in January. The second round of negotiations took place between March 7-18.
In Goyal’s words, the “long hanging fruit” approach will be captured in an interim early harvest agreement. An early harvest agreement is a precursor to an FTA between two trading partners.
The U.K.'s bilateral trading relationship with India stood at £23.3 billion in 2019. The impact of the Covid-19 pandemic is visible in the latest figures, with total trade in goods and services at £21.5 billion in the four quarters ending Q3 2021. The U.K. reported a total trade deficit of £6.1 billion with India as of March 18.
The DIT estimates that an FTA could strengthen trade ties, allowing U.K. exports to rise by up to £16.7 billion by 2035.
The pragmatism, political will and positivity that both sides are showing, I expect an early harvest by the first half of this year, McCole said.
I'm not sure how comprehensive that would be. I think it would focus on tariff-related issues which don’t require much technical changes, and maybe in some areas where standards are not too dissimilar, and probably relaxation in customs procedures.Kevin McCole, MD, U.K.-India Business Council
For instance, some food products that are manufactured in the U.K. and exported to India, they are first tested in the U.K. And then have to be tested again in India. So, to reduce costs, friction, this is one area that an early harvest can deal with, McCole opined.
A report by the U.K.- India Business Council has recommended some priority focus areas for the interim agreement-
Reducing tariffs, including on alcoholic spirits, food, and medical devices.
Reducing non-tariff barriers to goods trade, such as by aligning standards and simplifying customs procedures.
Intellectual property protection and alignment of data protection rules.
For India, McCole believes the interim win lies in tariff reduction on textile and leather products.
That is if India succeeds in getting a better trade deal compared to some of its neighbors.
For instance, for textile exports from Vietnam to the U.K., 42.5% of tariffs were eliminated on 01 January 2021. The remainder will be eliminated after 2, 4 or 6 years. Similar concessions have been agreed to for Vietnamese exports of raw materials for leather and footwear.
It's something for the Indian negotiators to work out, McCole said. One of the outcomes of the U.K. leaving the European Union is that it has got scope to move away from arrangements that it was earlier part of, he added.
The U.K.'s deal with Vietnam was a rollover or a continuation to what we enjoyed through EU-Vietnam deal. So Vietnam, Bangladesh, Sri Lanka have a lower tariff on textile compared to India because of EU arrangements. Now, the U.K. has more flexibility and I’m sure the negotiators will be pushing hard there.Kevin McCole, MD, U.K.-India Business Council
Watch the full interview here: