The unfinished business of the India-U.K. trade deal | Explained

The absence of a Bilateral Investment Treaty (BIT) within the CETA highlights a major friction point in India's international economic relations. In 2017, India unilaterally terminated numerous BITs to adopt a new model prioritizing domestic legal processes over Investor-State Dispute Settlement (ISDS) mechanisms. The U.K. and other partners often seek ISDS to guarantee international arbitration for their investors. Without a BIT, foreign investors lack treaty-based protections, potentially hindering foreign direct investment. Furthermore, the exclusion of the Carbon Border Adjustment Mechanism (CBAM) from CETA negotiations presents a future challenge. From 2027, the U.K. will levy carbon taxes on imports like steel and aluminum. For Indian exporters, this could negate the tariff reductions gained under CETA, as their production is often more carbon-intensive. This illustrates how environmental regulations are increasingly intertwined with global trade rules, impacting export competitiveness.

India's firm stance on intellectual property (IP) rights during the CETA negotiations underscores its commitment to protecting its generic pharmaceutical industry and ensuring public health access. By refusing to dilute Section 3(d) of the Patents Act, 1970, India successfully defended against evergreening—a strategy where pharmaceutical companies make minor modifications to existing drugs to extend their patent life. This provision ensures that only genuine innovations receive patents, allowing domestic manufacturers to produce affordable generic versions once original patents expire. This is a critical governance issue, balancing the need to incentivize innovation with the necessity of providing affordable healthcare to a large population. The U.K.'s acknowledgement that changing this would require significant legislative changes in India demonstrates the robustness of India's domestic IP legal framework.

The India-U.K. CETA reflects a pragmatic approach to Bilateral Relations, focusing on achievable goals while deferring intractable issues. By securing tariff reductions and mobility concessions while leaving out complex areas like BITs and the Carbon Border Adjustment Mechanism, both nations achieved a functional Free Trade Agreement (FTA) despite deep-seated differences. This strategy, often termed an early harvest scheme, allows for immediate economic gains while setting the stage for future negotiations. However, the unresolved issues, particularly the impending impact of the U.K.'s CBAM, indicate that the relationship will require continuous diplomatic engagement to manage the evolving intersection of trade, investment, and climate policy.