On 6 May 2025, India and the United Kingdom (“UK”) concluded a free trade agreement (“FTA”) after three years of negotiations. The FTA primarily aims to cut tariffs, boost market access for goods and services, ease customs procedures, enhance opportunities in government procurement, and safeguard intellectual property (“IP”) rights. Both countries have hailed this FTA as a significant achievement and a historic milestone.
Key Highlights Of The UK-India FTA
Although the text of the FTA is still being finalised, the UK government’s announcement and summary of conclusions, and the Indian government’s announcement report the following key highlights of the FTA:
Better Market Access for Products through Tariff Reductions
Average UK tariffs are low. In contrast, India imposes the highest average tariffs of any G20 economy, with duty rates exceeding 100 percent on automobiles and 150 percent on alcoholic beverages. The FTA aims to reduce India’s high tariffs as well as grant better market access for products from both countries.
Indian tariffs on UK products will be reduced in two phases:
Phase 1 – Effective from entry into force: Duty-free imports for certain advanced manufacturing products (e.g., aircraft parts, scientific and technical measuring instruments), and agricultural food products (e.g., salmon, cod, lamb).
Phase 2 – Staged over 10 years: Duty-free or reduced duty rates for imports of certain products, including:
- Automobiles: Quotas at reduced tariffs (from 100 percent to 10 percent), starting from internal combustion engine (“ICE”) but transitioning to electric vehicles (“EV”) and hybrid vehicles.
- Advanced manufacturing products: Duty-free imports for auto parts, machinery, tools, and medical technology devices, including surgical, dental, and veterinary instruments.
- Cosmetics and toiletries: For certain toiletries, duties will be eliminated on entry into force or after staging over 10 years. In addition, tariffs for certain fragrance products such as perfume will be reduced to 10 percent, staged over 10 years.
- Alcoholic beverages: Duties on whiskey and gin reduced from 150 percent to 75 percent as from entry into force, and further reduced to 40 percent after 10 years.
- Food and drink products: Duty-free imports for chocolate, gingerbread and sweet biscuits, soft drinks, and certain non-alcoholic beverages.
- Indian exports will also benefit from liberalised market access in the UK.
- Export opportunities for auto parts, engineering products, footwear, gems and jewellery, leather, marine products, organic chemicals, and sports products and toys.
- Quotas for Indian EVs and hybrid vehicles.
For now, it is unclear how UK tariffs on Indian imports will be reduced.
Furthermore, the FTA also aims to secure origin rules that facilitate improved access to the Indian market for UK products.
Liberalised Services Market Access
- The FTA aims to create a more favourable environment for UK businesses to operate in India, including in the construction, environmental services, and telecommunications sectors.
- UK businesses will not need to set up a company in India or be resident in India to supply certain covered services.
- Foreign direct investment in India for insurance and banking firms will be locked in at up to 74 percent UK ownership. This cap may be increased to 100 percent with certain limitations, as announced in February 2025.
Improved Government Procurement in India
- UK businesses will be able to compete for goods, services, and construction procurements at lower thresholds in India. The scope covers most central government entities in India and several federal state-owned enterprises.
- UK companies will be treated as ‘Class 2’ supplier if at least 20 percent of their goods or services are from the UK, which grants such companies preferential treatment in government procurement. However, the ‘Make in India’ preference will continue to apply to ‘Class 1’ suppliers that offer at least 50 percent of their goods or services from India.
Disputes and Trade Remedies
- The FTA establishes a state-to-state dispute settlement mechanism, e., between governments, to resolve certain disputes arising under the FTA. The mechanism will be suitably transparent, allowing businesses, non-governmental organisations, and other entities, to engage in the proceedings.
- A bilateral safeguard mechanism will be established to counteract surges of imports, allowing for temporary tariff increases and suspension of tariff concessions.
Other Relevant Aspects
- Customs procedures: Customs clearance procedures will be streamlined and simplified, while ensuring transparency and predictability. This will reduce administrative burdens and expedite the release of goods across borders.
- Digital trade: Barriers to digital trade will be reduced through the legal recognition of electronic contracts and electronic authentication. Furthermore, companies will be protected against forced transfer of source codes.
- IP rights: Standards for IP rights, including patents, copyrights, trade secrets, and geographical indications, and related procedures will be improved to protect and enhance the value of UK goods and services exports.
- Temporary movement of persons: Mobility rules on business travel to the benefit of specified sectors such as engineering and architectural services, accountancy services, and management consultancy will be locked in for the foreseeable future.
- Competition, consumer protection, and anti-corruption: Existing competition and consumer protection regimes will be applied and enforced on a non-discriminatory basis. The FTA will also introduce specific obligations to prevent and combat bribery and corruption, including the criminalisation of bribery and a prohibition on fraudulent book-keeping practices.
- Mutual cooperation: The FTA envisages further cooperation in several areas such as financial technology, environment, professional business services, innovation, labour, trade remedies, food standards, small and medium enterprises, gender equality, and technical barriers.
Areas Not Addressed In The FTA
A number of issues have not been addressed in the FTA:
- Tariff reduction for certain products: The UK government announced there are no tariff reductions on sugar, milled rice, pork, chicken, and eggs. Reportedly, the FTA also excludes diamonds, silver, smartphones, optical fibres, plastics, base stations, and television camera tubes and components from tariff reductions.
- Carbon Border Adjustment Mechanism (“CBAM”): The FTA does not appear to address CBAM, a UK levy on certain carbon-intensive imports such as steel and aluminium, for which India has been seeking an exemption.
- Certain services: The FTA does not seem to grant any unrestricted cross-border data flows and market access for legal services.
- Investment protection: The FTA does not cover investment protection, which will be covered in a separate bilateral investment treaty (“BIT”) that is still being negotiated by the UK and India. For background, in 2017, India unilaterally terminated the 1994 India-UK BIT, along with its BITs with several other countries. Under the 1994 India-UK BIT’s "sunset clause," existing investments made prior to the termination remained covered by the BIT’s terms for a period of 15 years.
- UK visa regime: Changes to the UK visa regime (if any) are reported to be minor.
What's next?
The next steps involve legal scrubbing, finalisation of the text, and the ratification process under the countries’ respective legal regimes. The timeline for entry into force is reported to be approximately 15 months.
Opportunities and challenges
The FTA offers significant opportunities for Indian and UK firms to boost their exports, serving as a key driver for trade. However, certain challenges remain, such as implementing transparency commitments. Areas such as CBAM, the UK visa regime (a sticking point in negotiations), and investment protection still need to be addressed for a deeper economic integration.
