What Progress on the US-India Trade Front Should Look Like

Piyush Goyal insists that New Delhi and Washington DC are “almost there” in closing the much-delayed “quick trade deal”, but a broader FTA will require confronting various thorny issues.

In a recent article in Foreign Affairs, Robert Lighthizer, the United States Trade Representative (USTR), made several adverse observations about India. “…the negative repercussions of [the] decision [to let India join the General Agreement on Tariffs and Trade (the precursor to the WTO) in 1948] persist to this day, now that India has become one of the world’s largest economies and, at times, a troublesome trading partner for the United States. Over the years, such concessions have piled up…,” Lighthizer wrote.

He observed that from Washington DC’s perspective, making “concessions on trade (to India) to achieve broader diplomatic aims…can prove costly in the long run”.

These comments are important for two reasons. First, the USTR is responsible for overseeing trade negotiations with other countries and his perceptions about partner countries are therefore critically important.

Secondly, India’s commerce minister Piyush Goyal recently announced that India and the US are “almost there” in closing a “quick trade deal”, alluding that the two countries would negotiate a preferential trade agreement before concluding a free trade agreement. While specifics of this proposed trade deal are not yet known, its broad contours, especially the trade-offs it could entail, can be gleaned from Indo-US engagements on trade issues.

Lighthizer’s comments are extremely significant for they suggest that trade relations between India and the US have been long and arduous.

In fact, disagreements between the two countries began with their engagements in the International Trade Conference, which was convened in 1946 to consider the US Proposals for Expansion of World Trade and Employment and was a blueprint for establishing the multilateral trading system. The Chair of the Conference, Clair Wilcox, reported that India opposed the proposals as it regarded them “as a document prepared by the US and the UK to serve the interest of the highly industrialized countries by keeping the backward countries in a position of economic dependence”.

India’s official response was even more explicit in its opposition: “it is wrong to expect a developing country which is faced with the prospect of constant changes in economic and political conditions both at home and abroad to commit itself in advance to a specific policy in commercial matters”. The response emphasised that “all round reduction of tariffs and trade barriers, without regard to the vital requirements of the domestic economy, cannot be accepted as an objective of international action”. It is India’s strong rejoinder to the US proposals that reverberates in Lighthizer’s comment seven decades later.

Also read: Countries Are Adapting Intellectual Property Laws to Prioritise Health During COVID-19

In its subsequent engagements with the US, both bilaterally and in the World Trade Organisation (WTO), India’s interventions reflected its own economic imperatives. The US, on the other hand, maintained that India’s trade and investment policies were detrimental to American interests and had initiated a series of “investigations” by federal agencies to prove its point. The last major investigation conducted in 2013 examined India’s “trade, investment, and industrial policies in India that restrict US exports and investment” and estimated the impact of these policies on US companies, US workers, and the US economy.

In several specific areas, the USTR has routinely put India’s policies under the scanner. These include India’s intellectual property laws, especially the Patents Act and the law for protecting plant varieties, agricultural subsidies and tariffs, and data localisation policy. The USTR has objected to India’s high customs duties on medical devices, pharmaceuticals, information and communications technology products, solar energy equipment and capital goods. Recently, the USTR has raised its ante the digital services tax that became effective on April 1.

Since 1988, the USTR has been “investigating” India’s intellectual property (IP) laws using the provisions of Special 301 of US Trade Act, which has continued even after India adopted an IP regime compatible with WTO’s Agreement on Trade Related Aspects of Intellectual Property Rights. The investigations are aimed at forcing India to amend at least two public interest provisions of its Patents Act that can be used to keep prices of medicines affordable. First, India does not allow patenting of mere formulations and new uses of existing products, thus preventing perpetuation of patent monopolies. Secondly, USTR has complained against “India’s continued use of the threat of compulsory licensing to coerce” the big pharmaceutical companies “to lower pharmaceutical prices”.

Yet another IP law that the US has red flagged is India’s law on plant varieties protection, which recognises the rights of farmers as plant breeders, as opposed to the recognising the rights of only the commercial breeders that the USTR supports. The latter variant of plant varieties’ law would force the farmers to be at mercy of the seed companies, this increasing their distress.

For several years, the US has been seeking substantial reduction in India’s agricultural subsidies, granted to rice and wheat in particular. The irony is that while the US targets India for granting subsidies to support domestic food security and rural livelihoods, it is the largest provider of agricultural subsidies, mostly for furthering the interests of agri-business.

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In recent years, there is emerging consensus in India that data is the “new oil” of the emerging information economy and that any data captured in India must be used for the larger good of the people. A dominant narrative in India is that given the criticality of data, it is imperative that free flow of data across international boundaries is prevented and that data such data must be stored in India, in other words, “data localisation” must be ensured. In order to achieve the objective of data localisation, the Personal Data Protection Bill, 2019 was introduced in Lok Sabha in December 2019.

The US administration has strong reservations regarding India’s data localisation policies and has been arguing for unrestricted mobility of data across international borders. The main reason for the administration’s reservation is that data localisation policies prevent e-commerce companies like Amazon and Flipkart (owned by Walmart) from capturing the data from their operations in India and to then use them exclusively for furthering their control over the market, at the expense of small traders.

Besides targeting India’s policies, the US has also denied one of its closest allies its legitimate rights to concessional tariffs under the Generalised System of Preferences (GSP). The justification for so doing was provided by President Donald Trump who has spoken of the “disadvantage” the US businesses face because India is a “very high-tariff nation”.

Washington’s terms of concluding a trade deal would be to ensure that, among other things, India opens its agricultural markets and implements “appropriate” changes in its IP and data localisation laws, thus bringing substantial benefits for American businesses. On the other hand, can India expect to benefit from this deal that is large enough to compensate for the losses to its farm sector and impending threats to health security of its citizens?

Biswajit Dhar is a professor at the Centre for Economic Studies and Planning, Jawaharlal Nehru University.