UK signs ‘biggest trade deal’ since Brexit

GS Paper - 2 (International Relations)

The United Kingdom formally signed a treaty to join a major Indo-Pacific bloc — what it said was the biggest trade deal since the country left the European Union at the beginning of 2020. Business Minister Kemi Badenoch put her signature on the accession protocol for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in Auckland, New Zealand. This is a modern and ambitious agreement and our membership in this exciting, brilliant and forward-looking bloc is proof that the UK’s doors are open for business.

What is CPTPP?

• The CPTPP is a landmark pact agreed upon in 2018 that cuts trade barriers among 11 countries, including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
• The pact requires countries to eliminate or significantly reduce tariffs and make strong commitments to opening services and investment markets.
• It also has rules addressing competition, intellectual property rights and protections for foreign companies. CPTPP is seen as a bulwark against China’s dominance in the region, although Beijing has applied to join, along with Taiwan, Ukraine, Costa Rica, Uruguay and Ecuador.
• Politicians in several countries, including the UK and Australia, are lobbying to keep China out, while Beijing is trying to prevent Taiwan from joining.

Why is the CPTTP so important to the UK?

• The UK government says CPTTP will cut tariffs for UK exports to Asia Pacific countries and with UK membership, the trading bloc will have a combined GDP of 12 trillion pounds and account for 15% of global trade. Britain is keen to deepen trade ties in the Pacific after Brexit in 2020.
• London has been pushing a “Global Britain” strategy since it gave up EU membership after nearly 50 years, leaving the bloc’s single market and customs union.
• Instead, former British Prime Minister Boris Johnson negotiated a trade deal called the EU–UK Trade and Cooperation Agreement.
• The UK’s long-term productivity is forecast to be reduced by 4% as a result of Brexit. The UK already has trade deals with 10 of the 11 other CPTPP members and the eventual economic boost is likely to increase GDP by just 0.08% annually.

India and UAE to promote use of local currencies

GS Paper - 2 (International Relations)

India and the United Arab Emirates (UAE) have signed a pact to establish a framework to promote the use of the rupee and UAE Dirham (AED) for cross-border transactions. The MoU on establishing a framework for the use of local currencies for transactions between India and the UAE aims to put in place a Local Currency Settlement System to promote the use of INR (Indian rupee) and AED (UAE Dirham) bilaterally, the RBI said. The MoU covers all current account transactions and permitted capital account transactions.

More about the mechanism

• The framework for the use of local currencies for transactions between India and the UAE aims to put in place a Local Currency Settlement System (LCSS).
• The creation of the LCSS would enable exporters and importers to invoice and pay in their respective domestic currencies, which in turn would enable the development of an INR-AED foreign exchange market.
• This arrangement would also promote investments and remittances between the two countries.
• The use of local currencies would optimise transaction costs and settlement time for transactions, including for remittances from Indians residing in UAE.
• New Delhi is likely to use this mechanism to pay for crude oil as well as other imports from the UAE, which is currently made in US dollars. India is the third largest oil importer in the world and the UAE was its fourth biggest supplier of crude last year.
• The RBI had last year announced a framework for settling global trade in rupees, primarily targeting trade with Russia. But this is yet to take off in a substantive manner.

Impact of the move

• Bilateral trade between India and the UAE was around $85 billion in FY23. New Delhi is looking to work out a way to hedge exchange rate risks in the rupee-based trade to limit losses for Indian exporters.
• The move to ink the pact with the UAE is part of a concerted policy effort by India to internationalise the rupee to bring down the dollar demand as a means to insulate the domestic economy from global shocks.
• Government had earlier indicated that apart from Russia, countries in Africa, the Gulf region, Sri Lanka and Bangladesh had also expressed interest in trading in rupee terms.
• The RBI’s plan to settle international trade in the local currency will let importers make payments in the rupee, which will be credited to the special account of the correspondent bank of the partner country, while exporters will be paid from the balances in the designated special account.
• The Central bank is also in the process of issuing a Standard Operating Procedure to all banks so that e-BRC (electronic bank realisation certificate) becomes easy to use.

Commercial mining of critical minerals approved

GS Paper - 2 (Polity)

The Union Cabinet approved amendments to the Mines and Minerals (Development and Regulation) Act, 1957, that will pave the way for commercial mining of six critical minerals — lithium, beryllium, niobium, tantalum, titanium and zirconium — and deep-seated minerals like gold, silver and copper.

More about the News   

• Currently, commercial mining of these critical minerals by private companies is prohibited. Only government agencies were allowed in exploration and mining operations.
• These minerals are key components of all modern technologies and go into the making of mobile phones, electric vehicles, solar panels, semiconductors, and wind turbines, among others.
• In February this year, the Geological Survey of India discovered a 5.9-million-tonne reserve of lithium in Jammu & Kashmir’s Reasi district.
• The amendments, once cleared by Parliament, will also allow the government to grant a single exploration licence to companies through auction.
• This is expected to be a big incentive for private companies, especially junior mining companies involved in exploration operations.
• This will allow companies a seamless process — from conducting reconnaissance (exploration) and prospecting operations (undertaken for the purpose of exploring, locating or proving the presence of mineral deposit) to finally getting the rights to mine a mineral resource, once it is discovered and the mine is auctioned.     
• Currently, the MMDR Act grants private companies a mining lease and a composite licence through an auction for conducting exploration and mining.

Flashback

• The government is currently giving composite licences in a smaller area (up to 25 square kilometres).
• But in the amendments, the ministry has proposed giving an exploration licence for a larger area of up to 5,000 sq km of a single block. The total area with one entity will not exceed 10,000 sq km.
• The MMDR Act regulates the mining sector in India and mandates the requirement for granting leases for mining operations. This is the fifth time that the MMDR Act, 1957, will be amended.
• India is dependent on China and other countries to meet its requirement of critical minerals including Rare Earth Elements (REE), which are the building blocks of modern-day technologies.