Despite the pressure of a presidential visit, India and the US could not finalise a limited trade deal. It would have been better to resolve this nagging issue as it has influenced perceptions in the US about India’s attractiveness as a partner. The impression that India’s economy remains relatively closed, that it is protectionist, it denies market access and reciprocity to American companies has gained ground, even if it is a one-sided view. In the past, Trump has dubbed India a “tariff king”.
The US wants greater access to the Indian market for its agricultural and dairy products, seeks lowering of tariffs on certain IT products and opposes India’s price controls on medical devices. It is against any requirement for ‘local content’ in manufacturing projects. Another American gripe is India supposedly changing the legal framework for e-commerce. The US is keeping a close eye on the Data Protection Bill that is now before the select committee in the parliament. Data localisation and privacy issues threaten to become contentious issues down the line. The US side wanted India to share the text of the proposed bill before it was introduced in the parliament. They firmly rejected this as it would have amounted to compromising sovereignty. The United States Trade Representative (USTR) was also seeking commitments that go beyond India’s WTO commitments under General Agreement on Trade in Services (GATS). He was not willing to accept the EU’s General Data Protection Regulation (GDPR) in India’s case.
India and the US have always had differences on trade issues bilaterally and in the WTO. India has been on the priority watch list for intellectual property rights (IPR) violations under Section 301 of the US Trade Act for years. Under the Obama administration, the US International Trade Commission investigated India’s trade, investment and IPR policies at the behest of the US Congress. In the WTO, India and the US have been at loggerheads on several issues, with India linking trade-facilitation issues with those of food security in 2014. The US has challenged India’s export subsidies at the WTO in October 2019. Trump, obsessed with trade deficit issues, has targeted America’s trade deficit with India and sought greater access to the Indian market to redress it.
USA imposed tariffs on steel and aluminium products from India in 2018. In return, India threatened to impose higher tariffs on several US products, but withheld action till June 2019, when the US withdrew benefits under the generalised system of preferences (GSP) to India, impacting Indian exports worth $5.6 billion. India then retaliated by imposing higher duties on 28 American products, including apples and almonds. In February 2020, USA imposed fresh duties on derivatives of steel and aluminium imports from India among other countries and in August 2019, Trump questioned the developing country status accorded to India and China by the WTO. This opens doors for the US levying higher countervailing duties on Indian products. The US is also unhappy at the increase in duties in the recent Budget on certain items of interest to US exporters.
The slate of trade issues was small to begin with, but as the negotiations went on without closure, more items were added—a total of 28. It is understood that there was agreement on 25 items, but not on three. The Indian side claims that each time they reached an agreement, the US side kept changing the goalposts and added more items to the list. As complaining US companies were brought on board, others raised demands. When India offered to reduce the duties on Harley Davidson motor bikes to zero, the USTR decided it was no longer interested in that concession. India was willing to make ‘carve-outs’, tweak duties and make exceptions for items of interest to the Trump administration in the so-called marginal states with the presidential elections in view.
India’s concern has been that because of the WTO’s most favoured nation (MFN) provision, any concession made to the US would have to be made available to other trade partners too. If India makes a concession to the US dairy industry, which is in distress, for every $1 the US gains, Australia and New Zealand would gain $7 to $8. China would gain much more than the US from the concessions India makes on IT products. India wanted a bilateral package deal to exclude others under the MFN provision, not unilateral concessions. In the case of medical devices, India has to view the costs involved in light of affordable healthcare, but is prepared to reward innovation. US negotiators might have thought that India was desperate to have GSP benefits restored, which is not quite the case, especially as exports of products that were covered by the GSP have grown by five per cent. From 2017 to 2018, US trade deficit with India reduced by $1.6 billion to $21.3 billion.
According to the Indian side, they could have concluded an agreement, but the USTR decided to wait for a more ambitious deal later in the year. India had actually favoured a deal with the US before the phase one US-China deal for optical reasons. The tendency on the US side is to blame India for failure to reach an agreement and place all the responsibility for striking it on India’s shoulders. The Indian impression is that during his visit, Trump was ready to have a limited deal—a small win—but the USTR adopted a tough stand.
In his Ahmedabad address, Trump envisioned a major trade deal with India, noting that since his inauguration, bilateral trade had increased more than 40 per cent, India was a major market for American exports and the US was India’s largest export market. At his joint press conference, Trump spoke of a “fair and reciprocal” economic relationship, mentioning that both sides had made progress on a comprehensive trade agreement and that since he took office, US exports to India had grown by 60 per cent and energy exports by 500 per cent. He appreciated the deal signed by ExxonMobil to improve India’s natural gas network and announced the setting up of a US International Development Finance Corporation office in India.
Modi, in turn, noted that both sides are committed to openness and fair and balanced trade. He mentioned that in the last four or five years, the sectors of energy, civil aircraft, defence and higher education had contributed $70 billion to economic ties. He mentioned the positive discussions between the two commerce ministers on trade issues and his agreement with Trump that the understanding reached by the ministers will be given legal shape, besides an agreement to initiate negotiations for a bigger deal.
The India-US joint statement notes the intention “to promptly conclude the ongoing negotiations” as phase one “of a comprehensive bilateral trade agreement”, the growing links in trade and investment in hydrocarbons and the potential for the US to meet India’s needs for coking/metallurgical coal and natural gas. The Nuclear Power Corporation of India Limited and Westinghouse Electric Company have been encouraged to finalise the techno-commercial offer for the construction of six nuclear reactors in India at the earliest.
Trump said several times during his visit that Modi is tough, but Trump can be tough too. He has kicked the trade issue down the road, but he wants to win and thinks that on trade issues, it is easy for him to do so. Meanwhile, India has vital interests to protect as it greatly values its economic ties with the US—now India’s largest partner in the goods trade, even surpassing China.
(Views are personal)
The writer is former foreign secretary of india