Just rejoice at that news, as Margaret Thatcher said in another context. The Brexiteers should be cheering the loudest. The UK and India have agreed a free trade deal. At a time of dismay at the world entering a new protectionist dark age – imperilling its prosperity – here is an enlightened move in the opposite direction. Instead, some look at it through the distorting Trumpian prism of who has ‘won.’ Both sides have won. The deal means the people in both countries will be richer as a result. That is because trade will be easier, and the magic of trading with each other is that there is a mutual benefit. The great safeguard against being ‘ripped off’ is that it is a consenting activity.
Nine years ago, as campaigning was getting into full swing for the EU referendum, the scaremongering began about mass unemployment and empty shelves in the shops. The TUC, Nick Clegg and others declared that three million jobs in the UK ‘depended’ on our membership of the EU. The implication was that unemployment would increase by three million if we left. That relied on the assumption that our exports to the EU would be reduced to nil. The idea of a total trade embargo being imposed on us was always a bit of a stretch. In reality, of course, we got a free trade deal. The EU did impose some unnecessary customs paperwork, but overall our trade with the EU has increased – service industries roaring ahead.
At the same time as that trade has continued, we have been free from the customs union and allowed the independence to negotiate our own trade deals around the world. It’s been frustratingly slow, but we are getting there. First, we joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – a trade agreement with Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Soon we may get a deal with the United States. But this week’s news is the breakthrough with India.
The poorest will gain the most. It will push down the cost of clothes and shoes for British consumers. India has already made great strides lifting millions of its citizens out of extreme poverty by turning away from socialism and allowing the market to operate. I have already paid homage on this site to Manmohan Singh for his role in this remarkable story. But domestic progress with those reforms has not been fully matched by opening up India’s economy to the world. There has been caution about lifting trade barriers. Now we see India negotiating deals with the United States, the EU, Canada and many other countries. Let us hope these talks succeed, so that high growth can be sustained and that the remaining hunger and destitution in that remarkable nation be quickly eradicated.
The new trade with the UK will also help our exporters – whisky, medical devices, advanced machinery and lamb being among the sectors highlighted. Services such as accountancy, where we are very strong, are being opened to our companies in India, which have previously been shut out.
I suspect the official estimate of a £5 billion annual boost to our GDP could prove rather cautious.
We often talk about the growing power of China. But India is not only growing faster economically but demographically. India is estimated to have just overtaken China in population (1.42bn versus 1.41bn.) That gap will widen, as China has an ageing population. Given that China is a hostile and undemocratic country, being on friendly terms with India does seem rather prudent. It is welcome that if we want cheap clothes, there will be more of them from India in our shops, competing with those made in China.
Politics, alas, does come into it. That might be inevitable, but it does make things more messy. This deal has got a bad press and criticism from opposition politicians because changes in the visa rules have been thrown in. They are pretty modest. They concern work permits rather than immigration. So far as I can work out, the extra number allowed in is capped at 1,800 a year – with visas allocated according to particular Indian professionals such as chefs and musicians. But it has not been ruled out that more allocations might be added, so that has roused suspicions.
The real problem is that immigration is regarded as much too high already. So any increase in the numbers coming in – even for specific and temporary arrangements – is highly controversial.
The deal has also been attacked for offering ‘two tier taxes’, but that is the opposite of the truth. It is a reciprocal arrangement to avoid double taxation on citizens working in either country. If someone from India is dispatched to work in the UK for a couple of years, working for an Indian company, they still have to pay tax in India. If we make them pay tax here, then they are being taxed twice. Indeed, you can say taxed three times – since they are also charged an annual £1,035 NHS immigration surcharge as a condition on their visa.
Why should Indians working temporarily in the UK for Indian firms pay National Insurance if they won’t be claiming pensions or unemployment benefits? We already have equivalent deals with the USA, Japan and many other countries to avoid this unfairness. The National Insurance exemption also applies for the first 12 months to the employees of all foreign companies. Again, the resentment at these modest and reasonable changes is due to the context of exasperation at such high levels of immigration.
It would be better if trade deals were just trade deals. When we voted to confirm our membership of the Common Market in 1975, we thought that the clue was in the name – it was really a trade deal. Those such as Enoch Powell and Tony Benn who warned about the loss of sovereignty could be dismissed as crackpots.
That is why, rather than struggling for years with these deals, a bolder free trade approach would be to unilaterally lift barriers. Some countries might reciprocate, some might not. But our exporters would still benefit from lower input costs. Milton Friedman’s story about all the things needed to make a pencil comes to mind.
You can trade with the Turk and not be ruled by the Turk – that was the sentiment of the great European powers towards the Ottoman Empire. Our immigration and visa arrangements are in a mess. Overall, they should be made much tighter. Of course, all those here illegally should be deported. Then it would be politically acceptable to liberalise where sensible in some very limited respects. But free trade is about ‘mutual recognition’ on standards and scrapping tariffs and quotas. Who is allowed to come and live in a country is a different issue. Muddling them up is unfortunate. Free trade with India is still a cause for celebration.
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