Are India and USA headed for trade pact?

When Indian Prime Minister Narendra Modi met US President Donald Trump on the sidelines of the G20 Summit in Osaka, on June 28, an ambience of perceived deterioration gripped relations between the two countries.

That ambience has been building up ever since the Trump administration imposed higher import duty on import of steel and aluminium from India. India waited for a year to clamp retaliatory tariff on 29 items, mostly agricultural goods like almond and apple, imported from the US but only after Washington scrapped the Generalized System of Preference (GSP), trade concession, to Indian exports worth 6.5 billion dollars. What exacerbated the divergences, most pronounced in the bilateral economic relationship, between the two countries was a Twitter post by Trump just a day ahead of his meeting with Modi. Trump tweeted that India’s tariffs were “very high”. It did not go down well in New Delhi and showed that this was a delicate moment in India-US ties.

Trump has turned many of the assumptions about the US foreign policy on their head by unsettling Washington’s ties with its traditional allies and adversaries alike so much that the abnormal is now the new normal and disruption of the status quo is the name of the game. Proceeding from his premise of “America first,” Trump has left little doubt that he would not allow many of America’s allies or potential friends to take advantage of the benefits traditionally enjoyed by the latter. The US has attacked almost all major economies for “unfair” trade practices through tariff hike and their national currency value control. His foreign policy has always been based on a give-and-take approach but Trump has made it more transactional than ever before in order to fulfil his objective of making America “great again.” This is all the more so as he faces fresh Presidential elections next year.

Tariff barriers the US and India are no doubt a deep winkle in their bilateral trade ties. But it certainly goes much beyond that. What the tit-for-tat action on tariff has done is much more than sparking a trade friction and laid the groundwork for a comprehensive bilateral trade agreement. It is reminiscent of how India’s nuclear device test in May 1998 had first drawn hostile US reaction and then ultimately led to the conclusion of the historical civil nuclear cooperation agreement. New Delhi was quite expectant that the Trump administration would put more pressure to go for such an agreement.

Prior to his visit to India on June 23, American Secretary of State Mike Pompeo had said in Washington that his country was ready to discuss the GSP issue. During a joint news conference in New Delhi with Indian External Affairs Minister S Jaishankar, he suggested the US was ready to work through the divergences with India. In Osaka, Trump talked about “big things to announce and big trade deals” and talks between the two sides would lead to positive outcomes. The remarks by Pompeo and Trump taken together are seen in New Delhi as the US keenness for a trade pact with India. Significantly, both the US Trade Representative Robert Lighthizer and Treasury Secretary Steven Munchin were present during Trump-Modi meeting in Osaka where both sides agreed to carry forward the talks on the trade relationship.   

Indian officials say that in a bilateral trade pact Washington might try to extract concessions on intellectual property rights and e-commerce sectors that are of top priority interest to American multinational giants eyeing the huge Indian market. Last year, the US had in the past expressed keenness to have a free trade agreement with India. If the US can coax India into a bilateral trade deal, it can put more pressure on India using the World Trade Organization route. India’s exports to the US stood at 52.4 billion dollars in financial year 2018-19 while imports were worth 35.5 billion dollars. Much will depend on what the US could offer India under a trade deal. But given that Trump faces re-election next year, he would not be in a position to make any concession to India including on visa for Indian IT professionals in the US.

On the e-commerce front, India’s ban introduced in December last year on companies with foreign direct investment from selling products via firms in which they have equity has been opposed by American biggies Walmart and Amazon. India’s prohibition on firms with FDI from deals with sellers to sell exclusively on their platforms has also not been liked by Walmart and Amazon. The US has also objected to India’s insistence on data localization in e-commerce, curbs on cross-border flow of data , transfer of intellectual property and preferential treatment of domestic digital products. India has drawn its own red lines in framing the trade ties with the US while Washington is trying to step up efforts to bring about changes in India’s trade rules to make them more favourable American interests. A give-and-take is inevitable in this process.

   The writer is  New Delhi Correspondent of the Bangladesh Post