US-India: It takes two to tango
• The US Commerce Secretary Wilbur Ross met Finance Minister Mr Arun Jaitley and Minister of Commerce & Industry Mr Suresh Prabhu during his visit to India on May 6.
• Both sides discussed some of the thorny issues affecting bilateral ties, including e-commerce, data localization, medical devices and duties on steel and aluminium.
• US has been critical of India on a number of issues. But it is clearly not in US interests to undermine its relationship with India, especially in light of its deteriorating ties with China.
• India must leverage this opportunity to secure a trade agreement that addresses its concerns and helps expand the bilateral relationship.
Amidst heightened trade tensions with India, US Commerce Secretary Wilbur Ross came on a visit to India to attend the Trade Winds Indo-Pacific Forum. Trade Winds is the largest annual trade mission programme of the US Department of Commerce. On May 6, he also met the Finance Minister Mr Arun Jaitley and Minister of Commerce & Industry Mr Suresh Prabhu.
While the meetings did not touch upon the issue of US withdrawal of India’s benefits under GSP, a number of contentious issues came up during the discussion. These include e-commerce, data localization, medical devices industry, personal data protection, ground handling of foreign airlines and duties on steel and aluminium.
With the US ending the waiver on oil imports from Iran, India faces the prospect of costlier oil imports. However, Wilbur Ross asserted that the US could do nothing to reduce import costs for India, as oil is owned by “private people”.
The US approach to its relationship with India has been a matter of intense discussion and debate over the past few months. Donald Trump has accused India of being a tariff king repeatedly, alluding to high duties on products like motorcycles and paper. US industry has expressed its dissent at the restricted market access for sectors like dairy, agriculture, health equipment and energy.
US has also highlighted that India’s IPR policies are not conducive for patent holders. The USTR has recently put India on the Priority Watch List, calling it one of the world’s most challenging economies with respect to protection and enforcement of IP. Its Special 301 report also claims that India and China are the largest sources of counterfeit medicines globally.
The case of Pepsi vs India’s farmers is an outcome of different perspectives on IP. Although Pepsi has withdrawn the case under pressure from various quarters, the issue could be a factor in negotiations over the coming months. Under TRIPS (Trade Related Aspects of Intellectual Property Rights) and UPOV (Union for Protection of Plant Varieties), plant breeders have exclusive rights over varieties they develop.
However this does not recognize the rights of farmers to their genetic resources and associated knowledge. The Indian PPV & FRA law, on the other hand, recognises the rights of the breeder as well as the farmer. So the farmers were legally permitted to sell the FL 2027 plant variety in question, unless they did so in the branded format.
Both countries are firmly on opposite sides on the negotiations with respect to e-commerce norms, data protection and digital trade. The US has criticized India’s stand on data localization, which compels foreign firms to have servers in India. The US is part of a group of 76 countries that are attempting to establish ground rules for e-commerce. India has refused to be a part of these discussions, in particular due to its apprehensions of unfair market access for large foreign e-commerce companies and opposition to the temporary moratorium on customs duties being made permanent.
Market access issues are a pain point for both countries in the bilateral relationship. India has shown some flexibility on tariff caps of stents, and could also offer lower duties on some ICT products. On the other hand, India expects US to give it a waiver from high tariffs on aluminium and steel, apart from greater market access for some of its key export sectors.
Greater gain in collaboration
Despite these irritants, India has a good opportunity to extract greater leverage from the US on the trade relationship. Despite its constant criticism on various fronts, US would also not like to upset its equations with India; which hold immense strategic relevance, especially in the current context.
US trade talks with China seem headed nowhere, with Trump threatening to increase tariffs on US$ 200 billion worth of Chinese imports from 10% to 25% by May 10. Meanwhile, there is a rising interest in US companies to see India as a viable alternative to China.
The US-India Strategic Partnership Forum (USISPF) has recently asserted that around 200 American companies are eager to shift their manufacturing base from China to India after the general elections. However, they also carry expectations of reforms, greater transparency and a consultative decision making process.
If the US is unhappy due to its trade deficit with India (US$ 24.2 billion in 2018), its corresponding trade deficit of US$ 378.6 billion with China is a certain catastrophe. India should view the current US tirade as an opportunity to actually enhance relations and formalise a trade agreement that helps improve India’s exports to US in sectors like agriculture, automobiles & auto components, textiles and engineering.
India should also be discussing the continued tightening of H-1B visa norms under the Trump administration, which affects operations of Indian IT firms in the US market. Moreover, the US needs to appreciate the fact that Indian tariffs are not unreasonable; its applied average tariff is similar to economies considered to be relatively more open in terms of trade.
Additionally, India can look at ways to facilitate US investment in critical areas like smart cities, SEZs, agri-tech, food processing, hospitality, energy, etc. As US firms find it increasingly difficult to do business in China, India is the best possible alternative, as a viable manufacturing base and a lucrative consumer market. India has quite a few aces, and should just play its cards right at the negotiating table.