Syed Kamall: The time is right for the UK to boost relations with India – but a trade deal will not be simple

23 Apr

Syed Kamall is Acting Academic and Research Director at the Institute of Economic Affairs and a member of the House of Lords.

Boris Johnson will be disappointed at having to postpone his visit to India, which was scheduled for next week. Not only was he reportedly keen to ensure that five million Covid vaccines would be delivered to the UK by an Indian supplier, but the current geopolitical environment made it an ideal time to strengthen the UK-India relationship.

Last month, the UK government published its snappily titled Global Britain in a Competitive Age: the Integrated Review of Security, Defence, Development and Foreign Policy, outlining the UK’s post-Brexit foreign policy. One of the main announcements was to prioritise building alliances with Indo-Pacific countries including India, to balance China’s increasing assertiveness in the region.

India has also been shifting its foreign policy priorities. In 2019, Vijay Gokhale, its Foreign Secretary, announced that “India has moved on from its non-aligned past. India is today an aligned state—but based on issues.”  More recently, India has also faced an increasingly hostile neighbour in the Chinese government. In June 2020, the Chinese army killed three Indian soldiers, the first military casualties along the disputed border for more than four decades. Despite subsequent diplomatic talks, there have been more clashes and, in the last few days, China has deployed a long-range rocket launcher “as a deterrent to India”.

These developments have pushed the Indian government to talk up its alliances with Western nations. In October 2020, the US and India signed the Basic Exchange and Cooperation Agreement on Geospatial Cooperation (BECA), allowing India access to US sensitive satellite data for military purposes. Earlier this year, Narendra Modi, India’s PM, joined the US President and the leaders of Japan and Australia for the first Quad summit (an informal strategic dialogue between these nations).

The UK has swiftly realised the time is right to boost relations with India. In February 2021, Liz Truss, Secretary of State for International Trade and Shri Piysuh Goyal, India’s Minister for Commerce and Industry, issued a joint agreement to deepen trade cooperation through an Enhanced Trade Partnership (ETP) and work towards a “potential comprehensive” Free Trade Agreement (FTA).

This will be no simple task. The EU started trade talks with India back in 2007, but suspended the talks in 2013, accusing India of a lack of ambition. However, in a briefing paper released this week by the Institute of Economic Affairs, Shanker Singham argues that outside the EU, the UK has the flexibility to sign a trade agreement with India that addresses both countries’ offensive interests (the markets or sectors they wish to gain access to) and defensive interests (markets they prefer to keep closed or minimise access to). He believes that the “contours” for a trade deal are already emerging.

The key UK demands will probably be better access for UK financial and legal services firms to the Indian market, as well as reductions to import tariffs on Scotch whisky. The key Indian demands will be on services movement of natural persons (so-called Mode 4, i.e. allowing skilled Indian workers into the UK) and the UK committing not to impose bans on Indian agriculture in violation of the World Trade Organisation’s Sanitary and Phytosanitary (WTO SPS) agreement, as the EU has done in the past.

Singham argues that there are both important commercial and geopolitical reasons for a UK-India trade agreement, writing that India could be brought into an alignment of nations including the countries signed up to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPPTP) as a bulwark against the negative impact of China’s market distortions and security policies. The UK has also applied to join the CPTPP.

However, the author does acknowledge that a number of obstacles to a UK-India deal persist. The Indian government has recently taken actions against the property rights of foreign investors, including ignoring the results of arbitration, which may scare away foreign investors and risk undermining the country’s global reputation and potential.

While free traders in both India and the UK would welcome a deal, there are other pitfalls to avoid. As India’s former colonial ruler, the UK government will need to approach the negotiations delicately, making clear the nations at the table are equals. As an emerging power, India is set to overtake the UK economy by 2024.

There are also doubts over India’s commitment to trade agreements. The joint statement on the ETP spoke of “a roadmap that would lead to a potential comprehensive FTA,” not exactly a firm commitment. Just after Modi’s re-election, the head of an Indian think tank with links to the Indian government told me that trade agreements were not a priority for Modi’s second term but might be for a third term.

Another concern is what trade experts call “beyond the border issues”. While trade negotiators may agree to liberalise a sector, the relevant government department or local states may be slow to implement the necessary changes. Some trade experts, for instance, point to the Indian states ruled by Marxist politicians, such as Kerala. Elsewhere, government departments may have good relations with industries wishing to be protected from foreign competition.

Furthermore, Prime Minister Modi is still committed to his Make in India initiative, launched in 2014 to transform India into a global design and manufacturing hub. While this is open to inward foreign direct investment, it suggests an economy that will prioritise domestic manufacturers over imported products.

And the UK government may also face some resistance. As the UK trade bill went through parliament earlier this year, a significant number of MPs and Peers expressed concerns over trade with nations with poor human rights records. In recent years, human rights activists and members of the Pakistani and Kashmiri diasporas have accused India of human rights violations in the disputed region of Kashmir and against Christians in Orissa. These concerns could be expressed whenever a future UK-India agreement is debated in the Westminster parliament – though it may not necessarily prevent a trade deal.

These are probably all obstacles that could be overcome, so the main determinant remains the attitude of the Indian government. In the 19th and early 20th century the UK was seen as playing a pivotal role in the balance of power in Europe. The challenge for Johnson and his ministers will be to convince India that signing up to the India-UK and CPTPP trade agreements will allow the country to play its role as a balancer of power in the Indo-Pacific region.

Syed Kamall: There may be advantages to No Deal for both the UK and EU

18 Dec

Syed Kamall is the Academic and Research Director at the Institute for Economic Affairs, and was an MEP for London from 2005-2019.

As the clock ticks down towards the end of the year, it’s still possible that there may be a No Deal Brexit. Both sides warn that they would prefer a deal and that no deal would be damaging.

While probably most people would prefer a deal, myself included, a No Deal scenario may not be as bad as predicted. In fact, from a purely political perspective, there may be some advantages to no-deal for both the EU and UK.

Let’s start with economics and trade. No Deal does not mean no trade. One of the myths of international trade is that countries trade with each other. In fact, it is people and businesses in one country that trade with people and businesses in other countries, for mutual benefit. Governments can either facilitate trade by getting out of the way or hinder trade by getting in the way, usually in the form of tariff and non-tariff barriers. UK companies already trade with businesses and consumers in many countries with which the UK has no trade agreement.

Often this is under WTO rules. Where a company faces tariff or non-tariff barriers on its exports it will continue to sell to customers in that country if it can do so profitably despite the barriers. Therefore, British companies will continue to sell to customers in EU countries and companies from EU countries will continue to sell to UK customers. Of course, there will be some disruption and where costs increase, companies will seek to reduce or absorb them, raise prices or seek alternative markets. As with any change, there will be short term winners and losers, but No Deal does not mean no trade.

Before the EU referendum in 2016, the Government published statistics warning of the dire impact of Brexit on UK trade. However, this was based on a gravity model of trade, which views international trade as an extension of internal trade. In other words, an economy such as the UK gravitates towards trading with its closest neighbours and economies which are similar in terms of size, cultural preferences and stage of development. It sees trade with more distant markets grow more weakly than ‘neighbourhood’ trade.

Gravity in trade creation can be thought of as a function of distance and size. But as Patrick Minford of Cardiff University demonstrates in his latest book After Brexit, What Next?, modelling UK trade using the gravity model leads to widely inaccurate results. The Treasury has since changed its models, but makes assumptions which come to similar conclusions.

In a recent Institute of Economic Affairs webinar, Minford explained that while he has challenged the Treasury’s assumptions, they had so far refused to engage. Sound familiar? He also contends that while there will be some disruption to trade, the Treasury has also underestimated the gains from trading with the rest of the world.

Brexit is also about more than about trade. As a Professor of Politics and international relations, I naturally also take a political view of the situation and from this perspective, there may be some advantages to No deal for both the UK and EU.

Many EU and UK observers, including colleagues at the IEA, have been exasperated by the emphasis that UK negotiators have placed on defending the UK-based fishing industry. But while this may seem puzzling from a macro-economic perspective, it makes sense when looking at both domestic politics, as well as the politics of the negotiations.

The UK adopted a tough stance on fishing, since it was the one of the few strong bargaining chips left after the EU had out-negotiated the UK over the Withdrawal Agreement. The EU had set the terms of the negotiations, insisting on a Withdrawal Agreement before a new trade deal instead of parallel negotiations, and the UK meekly followed

From the perspective of Michel Barnier, the EU’s chief negotiator, this made sense. He regularly told me that he saw the best future relationship as a customs union, and one or two of Theresa May’s negotiating team seemed to agree. He attempted to put as many elements of a customs union as possible into the Agreement, but this effectively gave the impression that the UK was only half-leaving.

So now, for the UK, No Deal would effectively tell the EU: “we are leaving and we want to make our own rules.” For the EU, it would tells eurosceptic political parties in EU countries: “don’t think leaving the EU is easy” – especially those countries for which the EU accounts for much more than 50 per cent of exports.

The UK leaving the EU without a trade deal may be less preferable for many, but it allows both sides to reset the relationship. So would what happen next?

One scenario is that we would negotiate sector-by-sector agreements, as in the EU-Switzerland relationship, while for other sectors we would trade on WTO terms.

Another scenario is that both sides would see the advantages of an EU-UK trade deal and begin negotiations almost as if the UK had never a member of the EU. This mind-set was probably difficult against a background of withdrawal, negotiated by a Prime Minister who didn’t really want to leave, but might becomes easier if No Deal is the result at the end of the year. No Deal would offer a fresh start.

Syed Kamall: Rashford’s campaign calls for state action – but it equally highlights the power of individuals and community

29 Oct

Professor Syed Kamall is Academic and Research Director at the IEA. From May 2005 to June 2019, he was a Conservative MEP for London.

While Marcus Rashford’s campaign to provide free meals for children has gained much publicity and public support, it has also come under criticism for providing meals for children regardless of need and for even nationalising parental responsibility.

The campaign is built on the assumption that state intervention is necessary to solve societal problems but equally it has highlighted the power of private individuals to affect change, as well as the dedication of volunteers in our local communities.

The campaign perhaps should be seen in the context of our country’s long history of helping those in need. As far back as 1597-8, the Elizabethan Poor Laws were administered through parish overseers, who provided relief for the aged, sick, and infant poor, as well as work for the able-bodied in workhouses. The latter would of course be unacceptable today. In the late 18th century, this was supplemented by the Speenhamland system, providing allowances to workers with below subsistence wages.

By the nineteenth century, it is estimated that as much money passed through voluntary organisations to those in need as did through the poor law. Many adults belonged to an average of five or six voluntary organisations, such as trades unions and friendly societies, offering financial protection against sickness and unemployment as well as savings societies, literary and scientific institutes.

While charitable provision was diverse, it did not reach everyone in need, which led to calls for state intervention and the introduction of state pensions in 1908 and state social insurance in 1911. Voluntary organisations began to accept money from the state, becoming complementary or supplementary welfare providers, but no longer being seen as the first port of call for those in need.

The 1942 Beveridge Report recommended a single contribution and a single state benefit agency for social insurance. Beveridge wanted friendly societies to act as state benefit agencies offering additional services if funded voluntary contributions. However, this idea was rejected by the Government and led to the post-war welfare state.

Despite the growth of state welfare, the UK maintains a mixed welfare model with thousands of local civil society non-state projects in neighbourhoods across the country, providing support and signposting for families in need, long before we saw the inspiring help that volunteers have provided during the Covid-19 lockdown. However, even within these organisations, there are some who see their efforts as stepping in where the state should be acting, rather than as part of a rich tapestry of local civil society.

This bias towards state-intervention is one that sees multi-millionaire footballers become advocates for more government action, where local community groups may already exist and even do a better job than state agencies. When I was a politician, I was sometimes contacted by constituents asking me to find a taxpayer-funded local council or national government or EU grant or hoping I could pass a law to solve a local problem. When I offered to introduce them to a project that had solved a similar problem in their neighbourhood, some were inspired while others saw this as an example of state failure.

Poverty, especially child poverty, has a devastating impact and as a society we should do everything in our power to offer routes out of poverty. But government is not the answer to every problem, and in our rush to do something, we should not overlook or squeeze out alternative solutions.

While some critics may prefer that Rashford built a coalition of other millionaires and companies to support local civil society organisations or offer to pay more tax before calling for state intervention, they risk overlooking the incredible good this young working class man has done.

Whether he sees it or not, his campaign has demonstrated the power of local civil society non-state organisations to address problems in their neighbourhoods. He has also inspired others to – In the words of Gandhi – become the change they want to see.

He is also raised the issue of corporate welfare, which in some cases has also seen money given to companies who did not necessarily need it. Is it any wonder, that Rashford and others argue spending public money on school dinners would be a better use of the taxpayer’s money, especially when so much has been splashed around?

Finally, the campaign has reignited the debate over universal provision vs targeted help and whether a better way to help hungry families would be via Universal Credit, giving families in need the money directly to make the best use of it for their individual circumstances and not to assume that parents will use the money for non-essentials rather than food.

On such an emotive subject it is easy for the waters to get muddied, for political opponents to take polarised positions and to trade accusations of being uncaring or misguided. Maybe we should instead take a moment to applaud Rashford for his actions, for demonstrating that welfare beyond the state is very much alive and for igniting a debate on the effectiveness of the solutions he proposes.