Unfinished Trade between India and Great Britain

Story so far: On July 15, 2026, the India-UK Comprehensive Economic and Trade Agreement (CETA) came into force, reducing tariffs on 99% of India’s exports and relaxing some mobility rules for professionals. But as Commerce Minister Piyush Goyal has said in the past, problematic issues were left out of the deal, so the trade deal only included those where there was agreement. There are three such key issues that remain unresolved.

Why is there no investment in the agreement?

Although the name of CETA contains the word “economic”, it lacks a dedicated section on investment that appears in other agreements that India has negotiated, such as those with the European Free Trade Association (EFTA) and New Zealand.

The agreements with EFTA and New Zealand include a commitment by both parties to facilitate specified amounts of investment in India. The UK agreement lacks this provision. One of the main reasons why India and the UK have not been able to move forward on an investment treaty is the difference of opinion on how the arbitration of disputes should be handled.

In 2017, India unilaterally abrogated almost all the bilateral investment treaties (BITs) it had entered into with the aim of reviewing them. An important provision of these BITs was that any dispute between a foreign investor and the Government of India would be heard in a third country.

The repeal of the BIT meant that foreign investors would first have to go through the full Indian legal process for a specified period before availing themselves of international arbitration, a prospect that has taken several foreign investors by surprise. The India-UK BITs could not be finalized along with the trade pact due to differences in this direction.

Without a BIT, investors have fewer treaty protections and no specialized mechanism for investor-state disputes should disputes arise.

Also read | A maturing approach: On the India-UK Comprehensive Economic and Trade Agreement

Why aren’t British drugmakers getting wider access to India?

Although India has agreed to lower tariffs, it will still be difficult for UK pharmaceutical companies to gain wider access to the Indian market. During the negotiations, India maintained its position on intellectual property standards and resisted pressure to adjust its standards to strengthen patent protection.

In particular, India has fought to preserve Section 3(d) of the Patent Act of 1970, which curbs the practice of “evergreening” by preventing pharmaceutical companies from obtaining new patents for minor modifications of a known drug unless they demonstrate increased therapeutic efficacy. Keeping this provision means that if the modified version of the drug does not meet the conditions for a new patent under section 3 letter (d), the original patent expires at the end of its term, allowing Indian pharmaceutical companies to produce generic versions of a drug, provided that there are no other valid patents covering the product or its manufacture.

As a result, UK pharmaceutical exporters will continue to compete with Indian generic manufacturers in the Indian market. The data illustrates how this has played out in the past. The UK exports around £26bn worth of medicines globally, but only £127m, or 0.5%, goes to India. On the other hand, the British National Health Service benefits significantly from access to cheap Indian generic drugs manufactured in India.

Giving evidence to a parliamentary committee, a British minister directly acknowledged the restrictions, saying he would “like to see us go further” on intellectual property, noting that it would require significant legislative change in India.

Why does the carbon tax remain a problem?

The UK’s Carbon Border Adjustment Mechanism (CBAM), due to come into force on 1 January 2027, lies entirely outside CETA. It was not part of the CETA negotiations. Under CBAM, the UK will charge importers of carbon-intensive goods such as steel, aluminum and cement a fee roughly equivalent to what UK manufacturers pay for the same emissions.

Indian steel and aluminum exporters, whose production could be more carbon-intensive than that of British manufacturers, will have to bear the impact of the CBAM levy, even if they receive lower import duties as a result of CETA.

The UK’s trade commissioner for South Asia said the two had been separated from the start: “We made it clear from day one that CBAM was never part of a free trade agreement”. UK officials said the issue would be dealt with separately once it came into force. For exporters, this means that the tariff advantage they get today could be offset by the carbon costs they face from 2027 onwards.

The saving grace is that the UK has yet to grant an exemption from CBAM to any country or regional bloc.

What lies ahead?

Taken together, these gaps point to a common pattern: CETA opens the door to tariffs and market access, but stops short of addressing the tougher questions of legal protection, investment protection, and climate policy that lie on its fringes. Professionals, investors, pharmaceutical exporters and high-carbon exporters will all be watching to see how and if these gaps are addressed over time.

Published – 24 Jul 2026 23:32 IST