Britain and India clinch major trade deal in 'new era' of Trump tariffs

By Shivangi Acharya and Alistair Smout

NEW DELHI/LONDON (Reuters) -Britain and India clinched a long-coveted free trade pact on Tuesday after tariff turmoil sparked by U.S. President Donald Trump forced the two sides to hasten efforts to increase their trade in whisky, cars and food.

The deal, between the world's fifth and sixth largest economies, has been concluded after three years of stop-start negotiations and aims to increase bilateral trade by a further 25.5 billion pounds ($34 billion) by 2040.

Indian Prime Minister Narendra Modi said the trade deal was "ambitious and mutually beneficial". British Prime Minister Keir Starmer said the strengthened alliance would reduce trade barriers in this "new era for trade".

Trump's tariffs have prompted countries across the world to redouble efforts to seek new trade partners and people familiar with the UK-India talks said the turmoil had sharpened the focus to get a deal done.

The deal, which will lower tariffs on goods such as whisky, allow British firms to compete for Indian contracts and allow Indian workers to more easily work in Britain, is significant for both economies.

It marks India opening up its long-guarded markets, including automobiles, setting an early example for the South Asian nation's likely approach to dealing with major Western powers such as the U.S. and the European Union. 

It also represents Britain's most significant trade deal since it left the EU in 2020. Government figures project the value of the agreement to add 4.8 billion pounds to growth each year by 2040, which is 0.1% of GDP.

India's trade ministry said 99% of Indian exports would benefit from zero duty under the deal, including textiles, while Britain will see reductions on 90% of its tariff lines.

STOP-START 

Talks over a free trade deal between India and Britain were initially launched in January 2022, and became a symbol of Britain's hopes for its independent trade policy after Brexit.

But negotiations were stop-start, with Britain having four different prime ministers since that launch date and elections in both countries last year.     

Britain's Labour Party, elected last July, moved rapidly to conclude a deal after restarting negotiations in February, with last-minute talks between the countries' trade ministers in London last week enough to get it over the line.

Whisky tariffs will be halved from 150% to 75% before reducing to 40% by the deal's 10th year.

The British drinks industry welcomed progress in cutting the tariffs even as the slow timetable for reducing the levies reflected India's sensitivities over its domestic spirit makers.

"The reduction of the current 150% tariff on Scotch Whisky will be transformational for the industry, and has the potential to increase Scotch Whisky exports to India by one billion pounds over the next five years," said Mark Kent, Chief Executive of the Scotch Whisky Association.

The deal covers rules of origin regulations, giving access to manufacturers to lower tariffs even if they use inputs from other places.

It also includes provisions on the services sector and procurement allowing British firms to compete for more contracts in India. On visas, there are provisions regarding business mobility to make it easier for professionals to travel with their work.

Neither government mentioned Britain's Carbon Border Adjustment Mechanism (CBAM), which could levy higher taxes on polluters from 2027 - a policy that India had sought exemption from as part of the talks.

India's trade minister has said that if Britain imposes carbon taxes on it in the future, it will retaliate, while Ajay Srivastava, founder of New Delhi-based think-tank Global Trade Research Initiative, said CBAM remained an "elephant in the room" that could negate the accord's benefits for Indian firms.

Talks over a bilateral investment treaty were not concluded alongside the free trade agreement, although a treaty on social security contributions was struck.

($1 = 0.7472 pounds)

(Reporting by Shivangi Acharya in New Delhi and Alistair Smout in London; additional reporting by Sachin Ravikumar, Muvija M and Emma Rumney in London and Aftab Ahmed in New Delhi; Editing by YP Rajesh, Sharon Singleton and Gareth Jones)