Staying clear of the optics and bonhomie on display all through the US President’s recent visit to India , one gets a sense that the road to even a limited trade deal is thorny
Prior to the maiden visit of US President Donald Trump to India, there was a sense of dejection about the possibility of the US and India signing even a limited trade deal, leave aside a major one. This is to be seen in the backdrop of the absence of United States Trade Representative (USTR) Robert Lighthizer from the delegation. Earlier, too, Lighthizer had cancelled a visit to New Delhi when he was scheduled to wrap up discussions on a trade agreement.
However, the mood was buoyant at the end of Trump’s visit. This was reflected in the press statement by Prime Minister Narendra Modi on February 25. He stated, “As far as bilateral trade is concerned, there have been positive talks between the two Commerce Ministers. President Trump and I have agreed that our teams will give a legal shape to the understanding that our Commerce Ministers have reached. We have also agreed to start negotiations for a big trade deal. We hope that it will yield good results in mutual interest.”
So, what is the understanding reached between the Commerce Ministers on either side? What is the time-frame for reaching a limited trade deal? What is the big trade pact? When will it happen?
Participating in the ‘US-India Forum: Partners for Growth’ on February 25, Commerce Minister, Piyush Goyal said, “On the economic front, having almost closed the last contours of the limited trade deal and with the announcement of a much larger trade deal in the offing, we have moved to a new level of engagement.” The deal could include restoration of benefits of low or zero duty to certain Indian exports under the Generalised System of Preferences (GSP) and market access for each other’s agricultural products, including pulses, dairy, almonds, walnuts and so on (items of interest to the US), fruits like pomegranate and grapes (of interest to India).
Even as the limited deal is largely about goods and market access, the big deal — call it Free Trade Agreement (FTA) — is all-encompassing, going much beyond goods and incorporating inter alia intellectual property rights (IPRs), investment and services, issues related to visas and manpower movement. The USTR has begun the filing process to initiate FTA talks. As per extant rules, the US Trade Promotion Authority requires the administration to notify the Congress 90 calendar days prior to entering into a trade agreement.
Staying clear of the optics and bonhomie on display all through, one gets a sense that the road to even a limited trade deal is thorny. At a fundamental level, both Trump and Modi are hard core nationalists and have increasingly leaned towards “protectionism” (even though in their posturing, they talk of “free” and “fair” trade. This was seen in the address by each). While the former has orchestrated his policies under “Buy American, Hire American”, the latter does it under the “Make in India” banner. Trump has unilaterally taken a number of steps which seriously undermine the multilateral rules of “free” and “fair” trade under the World Trade Organisation (WTO). These include rejecting the demand of developing countries for finding a “permanent solution” to stockholding for food security despite a decision at the ninth WTO ministerial held in Bali in 2013; hike in customs duty on steel and aluminum to 25 per cent and 10 per cent on imports (sans preferred friends of the USA); review of the H-1B visa programme to restrict the entry of foreign specialists/professionals to only “most-skilled and highest-paid applicants.”
Early last year, the US also asked the WTO to do away with the extant Special and Differential Treatment (S&DT) available to developing countries. The S&DT enables the latter to give less than reciprocal commitments. A major plank of this special dispensation is a fairly liberal threshold of 10 per cent aggregate measurement support (AMS) — an acronym for subsidies in WTO parlance — for agriculture for developing countries as against five per cent for developed countries. If, S&DT is withdrawn, India will have to limit its subsidies to less than five per cent of the value of agricultural production against 10 per cent currently. Last year (June), Trump also withdrew the over five decades old special dispensation viz. Generalised System of Preferences (GSP) available to developing countries (including India) under which they are eligible for export of specified products such as textiles, leather footwear and to the USA at low or “zero” customs duty. Justified on the ground that India is no longer a developing country, it has affected Indian exports worth $5.6 billion. The US, under the Trump administration, has also blocked the appointment of members of the appellate authority of the WTO Dispute Settlement Body (DSB) — an authority for adjudicating disputes arising from non-compliance with WTO rules. At present, there being just one member in the body against the required strength of seven, the dispute resolution process has come to a grinding halt.
India, too, has pursued its protectionist agenda with alacrity. Thus, it levies high customs duty on import of electronic items, especially mobile phones, dairy products and automobiles (for instance, Harley Davidson bikes in which Trump has keen interest); controls the price of medical equipment viz. stents, knee implants and so on; restricts policy on Foreign Direct Investment (FDI) in e-commerce; localisation of data generated from transactions by international digital and payment companies from their operations in India. There is a lack of effective enforcement of laws for protection of IPRs, especially patents, absence of a law on data protection and so on.
In pursuit of its “Buy American, Hire American” mission, Trump is seeking to do away with special privileges available to developing countries under the WTO and undermining the authority of this multilateral body on the one hand and extracting concession for its industries and businesses under bilateral deals with individual countries on the other.
Modi seems to be equally determined to protect the interests of India’s industries and consumers and has even taken recourse to retaliatory measures. For instance, after the US hiked tariff on steel and aluminum, India imposed duties of up to 50 per cent on 28 products, including almonds, walnuts, apple and so on.
The tit-for-tit syndrome can be seen from the US side as well. For instance, the withdrawal of GSP dispensation by Trump was triggered by changes in India’s policy on 100 per cent FDI in e-commerce “market-place” vide December 26, 2018 circular amending the Press Note 3 (2016-17) to say that “the marketplace can’t have ownership of the vendors selling on the platform”, nor can it have an “exclusive” arrangement with the latter. This hit the US-based MNCs like Amazon and Walmart, forcing them to rework their business plans; hence, the retaliatory action by the US. The gulf between the stance taken by the US and India is even wider in areas such as 100 per cent FDI in multi-brand retail (MBR), offline and online; localisation of data generated by international digital and payment companies from their operations in India; effective enforcement of laws for protection of IPRs, especially patents and law on data protection (this is mainly with respect to the data generated and submitted by MNCs in pharmaceutical and agrochemical sectors to the national regulators viz. the Drug Controller General of India [DCGI] and Central Insecticides Board & Registration Committee [CIB&RC] to seek approval for marketing of their new products in India).
Citing the dire need to protect the interests of millions of small traders, India has ruled out 100 per cent FDI in MBR. On data generated by international digital companies, while India would like them to retain all critical data with Indian servers and even set up a local office, Trump is uncomfortable with the idea. On protection of IPRs, even as India has retained Section 3(D) in the Patent (Amendment) Act 2005 (this is to prevent grant of frivolous patent), the US wants this to go. On data protection, another demand vociferously put up by the USTR (albeit on behalf of US-based MNCs), India is in no mood to oblige. It has argued that this goes even beyond what has been agreed to under the Trade-Related Aspects of the Intellectual Property Rights agreement of the WTO (1995).
Given these positions, which are poles apart, the FTA, that too before this year-end, sounds like daydreaming. A limited deal with some concessions on both sides could be done within this time frame. However, from the statements emanating from “key persons”, it would appear that even this idea has been put on the backburner for now.
(The writer is a New Delhi-based policy analyst)
