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London Eye: India may not go where Australia can’t

London Eye: India may not go where Australia can’t

London Eye: India may not go where Australia can’t
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By Sanjay Suri  May 20, 2021 8:28:00 PM IST (Published)

FTA talks have a way of producing politician sound bytes only so long as business realities begin to bite in.

What appeared a promising, and certainly much-promised trade deal between the UK and Australia appears to be getting blown off course by the current gale force winds sweeping Britain. And if that gets grounded by the difficulties coming up all around it, an India-UK free trade deal is unlikely to go far beyond the photo-op meetings between political leaders in India and Britain.

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The Australian demand is becoming as difficult to accept as it is simple to understand. Australia is suggesting that a free trade agreement must mean just that—free trade. To that end, it has asked for zero tariffs on farm produce from Australia in the UK market. British farmers are not quite finding that prospect appetising.
The distaste is not shared equally across Britain, even if it is shared widely. Farmers and their powerful political patrons seem concerned to a greater degree in Scotland and Wales than they are in England. That seems to underline a divide that has been surfacing ever since Brexit kicked in at the start of the year. If Scottish farmers were to get priced out by Australian imports agreed freely by London, the England-Scotland crack is certain to widen further.
The government in London certainly is keen to sign up for this deal, and do it before the G7 summit next month, to which Australia has been invited. This has been built up as the poster deal of a successful Brexit, of Britain signing up to buzzing new commerce around the world freed of EU shackles. Australia, seen in political circles, and perhaps in political circles only, as a cousinly extension of Britain, has seemed the best bet for a first such deal.
Britain has entered into “rollover” deals with many countries that simply continue the terms that applied when Britain was a member of the EU. But no new breakthrough deal has been agreed yet, and uncertainty marks everyone that is being negotiated.
The Australian deal would threaten particularly lamb and beef production in Scotland. Scottish production that is at present marketed across the UK would struggle to compete with the prices at which Australian farmers would be able to sell.
Retail prices for lamb and beef in Britain are at present about 20 percent higher than in Australia. Given the margins for superstores and retailers in Britain, that is already a potentially make or break differential. If retailers were to source just that much cheaper from Australia—and the difference could be greater—British farmers could get priced out.
If that were to happen to English farmers, Boris Johnson’s government could face a revolt within the ruling Conservative party, the party of rural England. If that were to happen to Scottish farmers, as it would, Boris Johnson would face anger on English farmers compounded by separatist anger on Scottish farms.
FTA with India
A trade deal of course cuts both ways and potentially brings benefits both ways. But not proportionately across all products, the regions they come from, and the political colours of the lobbies that back farmers in particular areas.
The resistance that the British government is facing already across farmer lobbies would get multiplied manifold in India if the Indian government were to cut tariffs on British imports, as the UK government wants it to.
An FTA with India could similarly lead to an Indian demand for lower tariffs on its own agricultural produce. India has already approached the World Trade Organisation (WTO) along with several other countries for compensation from the UK, and from the EU, for blocking its export of processed farm products. India would under an FTA look for even more access, that is certain to draw yet more resistance from British farmers, and their political champions.
The split is familiar; it has led to the failure to agree a free trade agreement with the EU for years when Britain was a member of the EU. And it does not threaten just agricultural produce but just about every produce, both ways along similar lines.
One strong British demand is for lower Indian tariffs for the import of British cars. An influx of British-made cars into India could be a killer blow to India’s own automotive industry—reeling currently under the impact of falling demand under the economic squeeze brought on by COVID-19. The fallout from that is expected to continue to hit the market for another few years. Just about the last thing that business now needs is lower tariffs on the import of British cars.
FTA talks have a way of producing politician sound bytes only so long as business realities begin to bite in.
London Eye is a weekly column by CNBC-TV18’s Sanjay Suri, which gives a peek at business-as-unusual from London and around.
Read his other columns here
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