Free trade agreement may give more than just ‘first-mover’ advantage to politically hostile Britain

Britain’s underlying orientation vis-à-vis India has apparently remained unchanged in its essentials since the late nineteenth century when Britain increasingly identified the Hindu of India as the adversary of empire

Gautam Sen February 03, 2023 18:07:45 IST
Free trade agreement may give more than just ‘first-mover’ advantage to politically hostile Britain

British prime minister Rishi Sunak. Reuters

The proposed free trade agreement (FTA) with the UK, which came close to being signed hurriedly in October, is puzzling. There seems to have been little searching public discussion of its economic and political implications for India, considering the significance of the potential impact. One thoughtful article by a former Indian ambassador to the WTO and a co-author enjoined caution and pointed to pitfalls, especially the dangers posed to critical Indian economic sectors in which Britain enjoys ‘first mover’ advantage. But there is more to this story that merits fuller identification and it may well be concluded that it is the UK that will experience significantly greater benefits from the FTA than India.

In addition, prudential caution is merited when some of the unknowable outcomes, which only the implementation of the FTA will reveal, are uncertain. One element of the public discussion suggests a degree of cupidity on the part of Indian negotiators which is an apparent preoccupation with temporary work visas for Indian students in the UK when other major issues are involved. It is suggestive of the malign influence of self-interested parties and some wholly ignorant British Indian lobbyists who favour the FTA.

One negative spin-off, already announced by significant numbers of major Indian corporates, is to invest in the UK once the FTA has been signed. Such an outcome would be a logical predisposition since companies legitimately diversify their production facilities in multiple geographical locations when regulations permit. In the Indian case, such outflows and relocation will be outsized once regulations no longer interdict them, especially because pre-existing restrictive domestic policies will have created pent up demand to diversify locational portfolios. Furthermore, many Indian companies will find it attractive to locate production in the UK, even if their principal market is in India. This will occur because production facilities in the UK enable them to take advantage of better British access to third markets since it has more open relations with the rest of the world economy than India. It will be legitimate to ask whether Britain, in turn, will embark on beneficial productive activities in India once most trade restrictions are removed, beyond facilities to produce some low-wage components. However, labour-intensive products fabricated in India will be subject to rules of origin and only suitable for re-export to the UK. They will not gain automatic access to markets in third countries of the EU and the US without duties being imposed on the incorporated Indian components in the product.

It is also relevant to note that many wealthy Indian families have long harboured a yearning to acquire a London retreat. Indeed, many would like to move altogether to the UK and educate their children in Britain’s private schools despite their astonishing cost and the racism of many, accompanied by a highly developed skill to socialise them to become totally deracine. Such families have an understandable wish to escape the pollution and chaos of Indian cities and the constant struggle of dealing with mostly uncaring authority at every turn. Besides, London is quite an extraordinary global city of manifest and unspoken delights, though nowadays one has to possess some wealth to enjoy them.

Will India’s new breed of entrepreneurs become Indo-British in identity, with commensurate inward cultural conflicts and doubtful loyalty. Contrary to asinine propaganda most British Asians are totally loyal to the British Crown and Britain. Even the Overseas Friends of the BJP used to begin their public events by first singing ‘God Save the Queen’! Lord Robert Clive of Bengal would be content that his successors haven’t forgotten how to entice Indians and befuddle their rulers.

Many Indian corporations in high technology sectors may also find it attractive to collaborate with British scientific institutions and university research departments, which are more advanced than their Indian counterparts. Indeed, this is the carrot being actively dangled at Indian entrepreneurs by British interlocutors that will end up progressively hollowing out emerging Indian technological prowess, a disastrous predicament for it. This is an arena in which ‘first mover’ advantages, enjoyed by the UK, will prove compelling and no latecomer industrialising country has managed to gain a foothold in advanced technology sectors without mercantilist non market policy intervention.

So, will India end up as a colonial low-wage economy that provides labour-intensive inputs for UK producers, like the coding tasks long the bread and butter of its IT sector? The logic of the immediate interests of an Indian company are unlikely to invariably coincide with the long-term strategic and geopolitical aspirations of a nation to ascend high technology sectors and compete on equal terms with first movers. Finally, there could be major capital outflows from India associated with the internationalisation of production by Indian companies and their scale will reflect the prevalence of antecedent restrictions on full freedom on the capital account. Indians now buy gold in order to diversify their currency holdings in lieu of foreign currency, not permitted at present. As a result, in order to diversify their holdings of assets, foreign investment in the UK might be the conduit companies use to evade the restrictions on unlimited capital export.

The vital issue that has not apparently been taken on board is the nature of the international exchanges likely to dominate the India-UK FTA over time. The importance of trade in intangible services is an area that needs very thorough scrutiny and its future value estimated. Such intangible service trade, essentially involving intellectual property, is a growing proportion of international trade and it is critical in the very large segment of cross-border intra-firm transactions. Such trade comprises both goods produced as complete individual products and constituent inputs that are components in a finished product, e.g. the increasingly large cost of research and design for manufactured products, such as cars. There are inherent difficulties in implementing rules of origin for the value added by such intangibles.

There is a great danger that British producers, incorporating intangible intellectual property in their goods, which comprises a major portion of the final value of a product, will have them created in markets outside the UK. How this will be subject to practical rules of origin enforcement is unclear. In addition, the temptation for producers from other countries, not party to the FTA, to set up shop in the UK to export to India will be irresistible. In many cases, all that will be required is to establish a shell company in the UK to legitimise the supposed British origin of such intangibles.

One cannot also avoid reflecting on the political relationship between countries which trade freely with each other. The European Union was, first and foremost, conceived as a political project to internationalise German steel and coal production. The rationale of the initial steps propelled it towards full economic and currency union owing to the Cold War. In this context, Britain’s close ties with Pakistan, China and the US, ought to give pause to those in India and their self-interested cronies in the UK who are apparently eager for Britain’s fulsome embrace of the Indian economy.

Historically, India has had few friends in British ruling circles in the entire history of its interaction with it, before and after Independence. There were a handful of prominent British individuals who admired aspects of Indian culture and civilisation, but quite early on the British establishment as a whole developed a detestation of Hindus. It was deemed the faith of upper caste detractors, who oppressed everyone else and simultaneously incited revolt against benign British rule to ensure India was prosperous and just. The man regularly voted the greatest Briton in history, Winston Churchill, even above the sixteenth-century heroine monarch, Elizabeth the I, Emperor Akbar’s contemporary, never bothered to conceal the contempt in which he held Hindus.

Britain now needs to engage with India to begin the difficult task of establishing trade and economic relationships with other countries, having severed its most important economic ties as a result of Brexit. The IMF predicts the British economy will shrink by 0.6 per cent between 2023 to 2024 and only recover by only 0.4 per cent in real terms from 2024 to 2025. The British economy is undergoing severe but predictable setbacks it is experiencing owing to the disruption caused by Brexit and India is an obvious partner to compensate for them. However, China will remain an important trade partner for the UK too and that relationship is unlikely to lessen in importance. More than 30 British universities are engaged in research with Chinese institutions involved in military R&D.

In any case, the India-UK FTA will likely prompt major investments in the UK by countries like China, wishing to take advantage of the FTA, a likelihood that would not have escaped the attention of British negotiators. In fact, it is worth reiterating that a country hostile to India like China is likely to accelerate investments in the UK once it has become a bona fide export platform to India. This will be a boon to Britain desperate for foreign investment, as the City of London, its main foreign exchange earner, declines in the face of EU restrictions. India is an aspect of Britain’s attempt at prudential diversification of its trade and economic relationship portfolio with an Indian economy predicted to surge in the next two decades. Yet, somehow, the very ingenious and artful British elite has managed to insinuate the idea that Indo-British free trade will primarily benefit India.

The prize of economic Anschluss with the US seems problematic despite Britain’s supine vassalage. This means Britain automatically acts in accordance with instructions from Washington on foreign policy. It has complied totally with US injunctions on the Ukraine war despite enormous domestic costs. If India was ever to be on the US radar for continuing to maintain connections with countries sanctioned by the US, as it has persisted in doing in recent years with Iran and Russia, there is a danger Britain will interrupt trade relations with India when Washington so demands.

If trade dependence owing to a FTA with the UK grows to significant proportions India will be faced with a dilemma, possibly having to comply with US international sanctions policies to avoid trade disruption with Britain. Such a difficult choice may arise for India simply because the FTA will bestow indirect leverage on the US to put pressure on India. Paradoxically, Britain might end up making the bigger economic sacrifice in the process of sanctioning India on behalf of the US. The issue of human rights to justify contrived US indignation against India seems to be another likely excuse for sanctioning India. The threat constantly hovers owing to mischievous fabrications against India by assorted human rights bodies ultimately sponsored by the US State Department.

The contemporary underlying distaste of the British establishment for India has proven hard to contain. It is now unashamedly displayed, with even greater vitriol, by the deracine Home Secretary of Indian origin. She is establishing her political credentials, as the inheritor of the mantle of the notorious politician Enoch Powell, by espousing the conviction of most British people and racist Tory members that no immigrants are welcome in Britain, even Indian students on temporary visas. Such is the support for her that even the prime minister, Rishi Sunak dare not risk questioning her and endanger his own credentials for indisputable loyalty to Britain, already deemed suspect by some. This is the reason Rishi Sunak has not genuinely attempted to defend Prime Minister Narendra Modi against the egregiously slanderous BBC documentary. He merely refused to actually condemn the Indian prime minister, by concurring with a Pakistani-origin Labour MP attempted to entrap him into doing so with a provocative parliamentary question.

Besides, Prime Minister Rishi Sunak, does not enjoy the usual full authority of a British prime minister. He was only nominated by the powerful City of London for his reputation as a good technocrat who could undo the damage done to the British economy by his predecessor, Liz Truss. Finally, it is worth recalling that Britain deviously sought to raise the issue of Jammu and Kashmir at the UN, in conjunction with Pakistan and China as recently as 2019. It has now offered a platform to Pakistan’s military chief and de facto ruler, General Syed Asim Munir Ahmed Shah, to raise it again during his January 2023 visit to London as a VVIP guest of His Majesty’s Government.

Britain’s underlying orientation vis-à-vis India has apparently remained unchanged in its essentials since the late nineteenth century when Britain increasingly identified the Hindu of India as the adversary of the empire. It had culminated in the sponsorship of the Muslim League in 1906, an event celebrated gleefully by the Viceroy’s wife, Lady Morley. The bonhomie between Britain’s ruling circles and the most regressive elements of Islam were soon to become a convenient stratagem in India as well as the Middle East in subsequent decades, as a vehicle for indirect neo-colonial rule. But the chickens have come home to roost with a rapidly growing Muslim population in Britain voting en bloc to exercise decisive influence over local and national politics. Pakistani Muslim voters and their coreligionists are able to influence the outcome in anything up to eighty marginal parliamentary constituencies.

The outrageous BBC documentary has laid bare the underlying dynamics of Britain’s relationship with India, in which Islam is always a major underlying backdrop. The documentary has been produced by journalists associated with Al Jazeera and likely funded by it as well since the Qataris outsourced the channel to the BBC, which effectively runs Al Jazeera. The creation of Al Jazeera under BBC editorial direction was likely the product of an understanding reached between Doha and London to deploy Islamic assets for the nefarious goals of each country to incite trouble in countries on a whim by denouncing them. Indeed, slanderous documentary against prime minister Narendra Modi could only be broadcast with the assent of the highest political authorities of the British establishment but, possibly, without informing Rishi Sunak, a further indication of his circumscribed, nominal role as Britain’s prime minister.

In practice, it means their electoral significance suggests Pakistani Muslim voters will dictate whether the Labour Party can form the national government or not. Many MPs of other political parties are also subject to the threatened wrath of this well-organised and disciplined political constituency. The Social Democrats and the Greens, supposedly preoccupied with issues affecting the environment, are all totally in the thrall of Pakistani dual national voters. Many of them are anxious to promote the secession of J&K from India and some are votaries of Khalistan as well. In a serious crisis between India and Pakistan or indeed China this powerful Pakistani Muslim constituency may demand Britain maintain neutrality and cease supplying any materials to India that might be useful in warfighting.

By contrast, it should be noted British Hindu Indian voters are pretty much outside the electoral process, with few bothering to vote. The dominant Hindu organisation, associated with India’s RSS, also thwarted attempts to register the Indian community for postal voting before the 2019 British general elections. The self-appointed leaders of these organisations, with little substantive connection to India over successive generations or loyalty to it, are almost unctuously deferential to the British government. Is this the country which India wishes to embrace with open arms to embark on a fraught path, making itself vulnerable at the very moment of its ascent to glory?

It will likely endanger the historic transformation that Prime Minister Narendra Modi is bringing to India. The outrageous abuse against him, with the devious acquiescence of pretty much the entire British political class and the wider BBC audience, is not just against him, but against India’s rise, for the first time in over a millennium.

The writer taught international political economy for more than two decades at the London School of Economics and Political Science. Views expressed are personal.

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