Trade

Have the Building Blocks Been Put in Place for an Indo-US Pact on Bilateral Trade? 

Both sides have to compromise in the short-term, in order to get a lot more in return in the long-run.

With $142 billion and rapidly growing bilateral trade, expectations about a bilateral trade pact between the US and India have been soaring high. 

Despite this, a deal could not be signed last week due to several differences. This is not to say that commerce minister Piyush Goyal and US trade representative Robert Lighthizer did not try to resolve these differences to strike even a minimalistic trade deal – in fact they did.

But despite their efforts, the most coveted breakthrough did not happen when the two leaders met in New York on the sidelines of the United Nations General Assembly. Nonetheless, Goyal and Lighthizer will speak on the phone in the near future and try to strike a deal. 

The fact is that both countries remain committed to improving bilateral trade and economic relations. For India, it is vital to expand its exports into the US to help our own economy. One also hopes that an expected visit of US secretary of commerce Wilbur Ross to India indicate that the two countries will continue to lower their differences on trade. 

These developments are onerous and will require the two sides to take cognisance of the broader framework for a bilateral comprehensive trade pact. The US must appreciate India’s limitations and India should return the favour. The need is to look for win-win situations.

Focus on SMEs  

The larger objective of an Indo-US trade deal should be twofold. First, it should provide an interim, if not permanent, resolution to prevailing trade concerns. Second, it is important for the two countries to take decisions on market data and intelligence particularly for the benefit of their small and medium enterprises. 

For example, Indian SMEs require both capital and technology. This provides the American private sector an opportunity to not only supply the technology and machines to their counterparts in India, but also infuse greater capital for scalable production through joint ventures. 

In the US-China trade war scenario, it is even more important for the American SMEs and large corporations to invest their capital, knowledge, technology and skills in a neutral and trusted country.

Also read: Why an India-US Free Trade Agreement Would Require New Delhi to Reorient Key Policies

Interestingly, given its trade relations with both the US and China and a huge and growing domestic market, India is in an advantageous position.

It will not only provide the American firms with market access opportunity to China through India, but also enable them to cater to the vast Indian market. Even more, they will get both the exposure and expanded access to the emerging Regional Comprehensive Economic Partnership landscape in the Indo-Pacific region. RCEP is being negotiated among the Association of Southeast Asian Nations plus Australia, China, India, Japan, New Zealand and South Korea. It is expected to be concluded soon. 

Build digital connectivity, defence and energy linkages 

Indo-US collaboration on the digital economy is extremely desirable, especially in view of Europe and China following their own paths without multilateral consultations. The ultimate goal could be providing 5G empowered digital infrastructure connectivity in the Indo-Pacific region. This would also provide impetus for India and the US to come together in shaping infrastructural and regulatory policies for the mass adoption of Industry 4.0 across the region.

Furthermore, Indo-US trade is poised to get bolstered in the context of India being a major defence partner of the US and recipient of strategic trade authorisation – STA – Tier-1 status. This status eliminates licensing requirement for US defence technology sales to India. Increase in defence procurement from the US by India including receiving the first fleet of Apache Guardian Attack Helicopters is a testimony to that. Lockheed Martin has made an excellent offer to manufacture F-21s in India which can boost our air force capability, job creation and exports agenda. In addition, US investments in building India’s defence capabilities are only going to benefit the two countries boost their trade and economic partnership.  

Also read: Why Trump’s Trade War With China Actually Hurts Beijing Less

On the energy front, since the US reinstated Iranian sanctions, India is reducing oil dependency on the Middle East region including Iran. As a consequence, India’s oil imports from the Middle East during the April to July 2019 period declined 10.4% from the same period in the previous year. 

In the same time frame, oil supplies from Africa (Nigeria) and North America (the US) saw an increase of 5.6% and 4.6%, respectively. To add to this, a $2.5 billion investment by India in the US for the supply of Liquefied Natural Gas for four decades is another measure that is going to strengthen bilateral trade.

Encourage constructive dialogues 

It is due to the concerted efforts of respective officials that the two countries continue to engage through mutually acceptable and beneficial trade discussions and in a constructive and systematic fashion. 

For instance, Indian concerns with regard to import of U.S. dairy products may now be resolved with few safeguards that protect sentiments of the vegetarian and cow worshipping populations in the country. Earlier, India was not even willing to discuss this on the ground that US dairy products are derived from cattle who are given feed made from animal offals etc. 

Recent developments indicate that India is willing to work around a mechanism to enable dairy imports from the US provided they don’t violate public sentiment. Likewise, on the issue of price controls for medical devices, the Indian government was in August reported to be reviewing categorisation of medical stents with a mindset to carve out their high end segment from price caps. 

Such advances in trade negotiations underline the success of negotiators from both the sides in advancing mutual understanding. 

Nonetheless, there remain issues pertaining to data localisation, termination of benefits to India under the Generalised System of Preferences, counter tariffs and tariffs on electronics and communication products, among others.

Also read: As Modi Visits US, What Does the Free Trade Pact Mean for India’s Pharma Industry?

The list goes on if it includes inclusion of India in ‘Priority Watch List’ of the Section 301 Report under the Trade Act 1974 of the US. Such measures would only defeat the mutual trust and encourage restrictive market access barriers, non-tariff measures including price controls on medical devices and pharmaceutical as well as increase regulatory compliance for other exports. 

Given this, it is ever more important for the US and India to address contentions over Section 301, listing particularly those related to pharmaceuticals, among others. India’s competitiveness in generic drugs and US competitiveness in patented drugs should instead steer convergence in their intellectual property narratives. 

Also, joint research and development in the pharma, medical device and healthcare sector is a much needed stimulus that both the countries need to undertake to provide affordable and inclusive healthcare globally, with adequate protections to innovation. 

Pradeep S. Mehta and Prashant Sharma work for CUTS International, a global public policy research and advocacy group.