“At this stage, India is not ready for a trade deal with US”

Dr Arpita Mukherjee, Professor, Indian Council for Research on International Economic Relations (ICRIER) speaks to TPCI on the fallout of the US according developed country status to India and the prospects of a balanced trade deal between the two countries.

TPCI: The US has removed India from the list of developing countries. What implications can this have for India’s exports in the coming years?

Dr Arpita Mukherjee: India has a positive trade balance with the US but the gap is reducing and is likely to reduce further. However this is not unexpected. It is the result of market access barriers that India has imposed on US products and technology companies. If India unilaterally takes action against its major export market and at a time (December 2018) when one of the key investment inflows was supposed to come from the US, can we expect the US not to retaliate?

TPCI: Is the removal of developing status justified in terms of share in global trade and membership of G-20, despite per capita GNI being well below US$ 12,000? Please elaborate.

Dr Arpita Mukherjee: Logically, a country can give any argument to substantiate its reasons for withdrawal of benefit to foreign exporters. My question is why do we need GSP? If we are not competitive and we want to export then why did we go ahead and created problems for US exporters?

TPCI: Why has the issue of ‘developing status’ for countries like India become so important in recent years? Is the definition of ‘developing’ as given under the ‘Agreement on Subsidies and Countervailing Measures’ still relevant in today’s context?

Dr Arpita Mukherjee: In the year 2018, the US took India to the World Trade Organization’s (WTO) Dispute Settlement Body over a number of export subsidy schemes, including the special economic zones (SEZs). On October 31, 2019, India lost the export subsidy case as the Panel agreed that the subsidies given to the SEZs and through other schemes are prohibited subsidies under the provisions of the WTO’s Agreement on Subsidies & Countervailing Measures (SCM). India has filed an appeal on November 19, 2019, but since the WTO appeal process will take time, US can do anything they want.

TPCI: How will the ‘developed country’ status impact India’s ability to provide subsidies to its farmers? As a consequence, how is it likely to affect farm exports?

Dr Arpita Mukherjee: The ‘Agreement on Subsidies and Countervailing Measures’ clearly states which subsides are prohibited or actionable. We cannot and should not give prohibited subsidies. We should give WTO-compliant subsides. Every country gives subsidies. Hence, the issue it that we have not smartly designed our subsidies.

TPCI: With this recent development, how does the equation look for an India-US trade deal? What key negotiating points should India now put on the table to ensure a balanced trade agreement that protects its interests?

Dr. Arpita Mukherjee: We need to do some reforms/adjustments first, which include:

• Removal of price ceiling on medical devices
• Removal of restrictions on foreign e-commerce companies
• Provision of access to dairy products
• Removal of high tariffs on alcoholic beverages
• Policy of data sharing with trust
• Removal of restrictions on store-based retail (some of which are irrelevant and cannot be monitored)
• WTO-compliant subsidies

Only then we are ready to sit across the table for a trade deal. At this stage, we are not ready for a trade deal, which will be balanced or through which our exporters can gain.

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Dr Arpita Mukherjee is a Professor at ICRIER. She has several years of experience in policy-oriented research, working closely with the Government of India and policymakers in the EU, US, ASEAN and in East Asian countries. She has conducted studies for international organizations such as ADB, ADBI, ASEAN Secretariat, FCO (UK), Italian Trade Commission, Konrad-Adenauer Stiftung (KAS), OECD, Taipei Economic and Cultural Centre (TECC), UNCTAD and the WTO and Indian industry associations such as NASSCOM, FICCI, IBA, IDSA and EICI. Her research is a key contributor to India’s negotiating strategies in the WTO and bilateral agreements. The views expressed here are her own.