FNB News - India, UK examining bilateral trade interest including cess on Scotch

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India, UK examining bilateral trade interest including cess on Scotch

Thursday, 29 April, 2021, 08 : 00 AM [IST]

Ashwani Maindola, New Delhi

India and the UK are examining the sectors of bilateral trade interest and analysing each other’s priorities and trade sensitivities following the signing of Enhance Trade Partnership (ETP) between the two countries in February 2021. The pact, signed by Commerce Minister of India Piyush Goyal and UK Secretary of State for International Trade Elizabeth Truss, is expected to lead to a comprehensive free trade agreement in the future between the two countries that includes the food and drinks trade.

The two sides have also announced that they may enter into an interim pact on a preferential basis, something like an early harvest agreement.

The food and drinks will be a key sector for the trade discussions under the ETP and discussions will focus on both tariff and non-tariff issues between the two countries.

The Foreign, Commonwealth & Development Office, UK, has already partnered with Indian Food Safety and Standards Authority of India (FSSAI) for streamlining the import process using technology for better and transparent risk management.

Arpita Mukherjee, Professor, ICRIER, points out that India is one of the largest producers of a number of agricultural commodities and the UK is one of the largest importers of food and drinks globally and held the 5th rank (US$59,211 million) in 2019.

She said that in food and drinks, India had a positive trade balance of US$475.30 million with the UK. India’s total food and drink trade to the UK increased from US$479.97 million in 2009 to US$873.72 million in 2019 (i.e., 82.04 per cent). India’s export to the UK includes products such as rice, tea, fruits and vegetables, frozen products like prawn, and organic products. Over 88 per cent of the UK exports to India in 2019 was ‘Ethyl alcohol, undenatured; of an alcoholic strength by volume of less than 80% by volume; spirits, liqueurs and other spirituous beverages’ (HS 2208), commonly known as Scotch Whisky.

The other exports from the UK to India include food preparation, crustaceans, cheese and curds, bread and bakery products and cereal grains.

“Thus, India’s export basket to the UK is more diversified than that of the UK to India. In trade negotiations, the areas of interest do not lie in current trade flows only but on trade barriers. For example, India until recently had the Customs tariff rate of 150 per cent in 2019 for Scotch Whisky bottled in the country of origin and for Bulk Scotch Whisky imported for bottling in India. India also imposed a tariff of 150 per cent on intermediate products, namely ‘Undenatured Ethyl alcohol of an alcoholic strength by volume of 80% vol. or higher (HS code 220710), which is used for blending with production in India for domestic use and exports. This will be a key issue raised by the UK during the trade discussions,” she told.

She added that more recently, adhering to the concerns of its trading partners, the Union Budget of 2021-22, brought down the Basic Customs Duty (BCD) to 50 per cent, but introduced an Agriculture Infrastructure Development Cess (AIDC) of 100 per cent, which maintained the BCD+AIDC at 150 per cent, the previous tariff levels. While cess of any kind is not generally considered as a duty of Customs, Section 115(1) of the Finance Act 2021 refers to AIDC as a duty of Customs. Hence, most likely the UK will take it up in trade discussions.

India and the UK intensified their trade and collaboration discussions post-Brexit after identifying and prioritising the sectors, post-February 2021, the planned visit of British Prime Minister to India.

However, PM Boris Johnson has cancelled the visit due to Covid-19 pandemic. It has been agreed that the Prime Ministers of the two countries will speak towards the end of April 2021 and discuss the next steps. They will also likely meet before the G7 in June 2021.

In 2019, in terms of value of food and drink products, the UK was India’s 12th largest exporting partner (share of 2.16 per cent) and held the 17th rank among the importing partners (share of 1.09 per cent).

India was the UK's 22nd largest exporting partner (share in value in UK exports is 0.8 per cent) and held the 16th rank among the importing partners (share of 1.2 per cent). In the same year, India had a positive trade balance of US$475.30 million in food trade with the UK. India’s total trade to the UK increased from US$479.97 million in 2009 to US$873.72 million in 2019 (i.e, 82.04 per cent).