Asymmetric Tariff Cuts between India and the UK: A Model for Trade Agreements Between Developing Countries?

Background: An overview on a Free-Trade Agreement (FTA)

An initiative designed to eliminate trade barriers between participating nations, making it easier to import goods and services and thus promote trade and investment. July 2025 saw the biggest FTA for the UK following their departure from the EU, causing a 6% – 30% reduction in exports. 

In a deal expected to augment bilateral trade by $34 Billion USD as well as the British GDP by approximately $6.4 Billion USD per annum from 2040, the Free Trade Agreement (FTA) between UK and India initiated in July 2025 is the UK’s largest following their departure from the European Union in January 2020. Under the deal, India will cut levies on 90% of British products sold nationwide, with 85% total products from the UK expected to become tariff-free in the next decade. 

Notably, tariffs on whisky and gin will be halved from 150% to 75%, falling to 40% in the next decade, in addition to automotive tariffs reducing to 10% from over 100%. To reciprocate, 99% of India’s exports to the UK will face no duties.

Products most commonly imported and exported between India and the UK (Source: UK Department of Business and Trade.)

Why now?

A weakening US-IND relationship on account of an additional 25% tariff imposed on India due to purchasing Russian oil, in conjunction with slowing UK exports per annum since Brexit has expedited a trade recovery between the two nations following a three-year period of stop-start negotiations. 

Uniqueness

FTAs between a developing and developed country follow a standard asymmetric procedure. A developed country will liberalise (reduce tariffs) faster, whilst the developing country is given a “grace period”, meaning it can have safeguards on limited items (imposing tariffs if imports surge) and tariff rate quotas (tariffs on imports beyond a certain quantity) but is expected to catch up within a few years. However, this is usally done at the discomfort of a developing country: compelling faster liberalisation than at a comfortable rate. In this way, asymmetry is seen as a temporary concession by the developed country instead of a structural principle of the agreement. 

This engenders an ostensible power gap at the expense of the developing country. The developed country may gain short term wins, of course, but at the expense of long-term instability to their counterpart. Because developing countries often rely on industries vulnerable to foreign competition (cottage industries, small workshops, et cetera), being forced to rapidly cut tariffs leads to job loss and social unrest. 

However, the UK has given India notably longer staging periods, with around 10 to 15 years to cut tariffs across all sectors. In turn, the UK’s safeguarding privileges match that of India, so both countries are remarkably able to impose tariffs on much broader sectors (e.g: agriculture) compared to usual developed-developing FTAs. In addition, an allowance to cut tariffs on “luxury” products such as whisky and autos into India, being highly priced relative to income is another novelty evinced in this FTA.

As such, the UK’s flexible and compromise-driven approach strays away from the standard developed-developing country FTA, resembling a developing-developing style. 

Why the UK for India, and vice versa? 

India has evinced trepidation for FTAs in the past, shown in leaving the Regional Comprehensive Economic Partnership (RCEP) in November 2019 due to safeguarding concerns of fragile industries. Not only isn’t this an issue with the UK, but this also augments a general prestige in partnering with a G7 Economy for the first time in a major FTA for India. 

Issuing more Masala Bonds are another advantage for India in choosing the UK, referring to rupee-denominated bonds issued primarily in London. An easier access to capital flow means Indian firms can raise more money with lesser friction, increasing offshore demand for the rupee and thus decreasing dependence on the USD for trade.

From the perspective of the UK, India being the world’s fastest growing large economy in conjunction with an expanding middle class increases demand for the goods and services they can provide (whisky, autos, et cetera). 

A worldwide message

The old developed-developing model of FTAs is unviable: durable and politically advancing trade deals between two nations of different classifications should embrace vulnerability to augment credibility. Demanding rapid liberalisation with little safeguarding, while speedy, runs the risk of collapse. Amidst a milieu where new geopolitical relationships are readily forming and straining, cementing a decades-long bilateral agreement gives the UK a massive post-Brexit win whilst truly strengthening an already growing Indian economy.

Of course, a large Indian diaspora and the trade losses incurred by Brexit were factors in the UK’s compromises, but whether the EU or USA would be as flexible? We’ll have to wait and see.

Bibliography

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