Amid the Howdy Modi euphoria during Prime Minister Narendra Modi’s recent visit to the United States and his bonhomie with US President Donald Trump, a fresh hiccup in the trade ties between the two countries has largely gone unnoticed.
Contrary to expectations, India and the US failed to announce a trade package during or after the meeting of the two leaders as both the sides could not bridge the gap in their positions. The failure to work out the package is of concern, because, after his meeting with Modi, Trump promised a trade deal with India “very soon”. Moreover, the presence of commerce minister Piyush Goyal and US trade representative Robert Lighthizer at the New York negotiations had raised hopes that the two sides were nearing some sort of an agreement
In the absence of official details, it is difficult to ascertain why and where the negotiations got stuck. Available media reports suggest that one major hurdle could be information and communications technology (ICT) products. The US, in recent times, has been nudging India to bring down import duties on ICT items, such as high-end mobile phones and smart-watches. Major US companies, such as Apple, have supported the move as they feel India is a major market for consumer electronics.
While the proposal is under New Delhi’s consideration, what is queering the pitch is the quantum of reduction demanded. India is concerned that a deep cut in import tariff could lead to Chinese technology flooding the local market.
As of now, total inbound shipment from the US stands at little over $35 billion. Of which, ICT products make up for only $407 million. So why is the US harping on a duty cut on items that do not contribute much by way of export earnings from India? It could be because US trade officials have spotted this category as a major growth puller for their economy in the future.
On the other hand, India is trying to limit its exposure to foreign products for electronics imports. At $52 billion, electronics import is one of the top contributors to the country’s total import bill. Under the phased manufacturing programme, the government plans to reduce the import of technology products over the next five years.
Other than the ICT items, the limited or interim trade agreement was supposed to cover tariff-related concessions for US farm products, especially dairy items, and pricing of pharmaceutical products such as stents and knee implants. Let us also not forget that for quite some time now the Trump administration has been putting pressure on New Delhi for a full-fledged free trade agreement. The Union government has been consistently resisting this demand as it feels that India stands to gain little from such a pact, given import duties for goods coming from the US are already among the lowest globally.
India wants a mutually-acceptable trade package that provides an amicable solution to major grievances, including restoration — even if partial — of benefits accorded to its exporters under the Generalised System of Preferences (GSP), which was terminated by Trump in June.
In fact, the India-US ties under the Trump administration suffered a setback when Washington decided to withdraw zero duty benefits to Indian exports worth $5.6 billion under the GSP. New Delhi retaliated by imposing tariffs on 29 products imported from the US.
Though foreign secretary Vijay Gokhale claimed after the New York talks that significant progress had been made with both the sides narrowing differences, there are indications that the US has sought consultations under the World Trade Organization’s dispute settlement mechanism over the imposition of import duties by India on certain ICT products.
According to experts, Trump needs to show results on trade issues before he launches his re-election bid next year. The withdrawal of GSP is hurting US companies. So if a deal does not fructify soon, there is a strong possibility that Trump could toughen his stand and drag India to the WTO. If it reaches the precinct of the WTO, an early resolution looks extremely bleak.
Though he did not provide a time frame for the conclusion of an agreement, Gokhale seemed optimistic of achieving it in the near future.
The situation does not look very encouraging and the two countries need to keep engaging and not let the momentum fizzle out. In fact, a successful conclusion of the trade package can be a harbinger of how deftly the two sides can tackle bigger issues — such as data localisation or foreign direct investment in e-commerce — in the future.
If India and the US are to realise the full potential of their trade relationship, they need to quickly sort out the irritants and move forward.
Source: moneycontrol.com