Bumps in the road for India-US trade

India is likely to find a Donald Trump-led US a less yielding partner in the quest to reach $500 billion in bilateral trade


US President Donald Trump. The H1B visa debate shows that India is vulnerable to a US clampdown on services exports. Photo: Reuters
US President Donald Trump. The H1B visa debate shows that India is vulnerable to a US clampdown on services exports. Photo: Reuters

US President Donald Trump’s views on trade in goods and services, and his reputation as a deal-maker, have been a source of both angst and comfort for those concerned with the US-India relationship. Pessimists point out that Trump’s declared intention of bringing jobs and investment back to the US is directly contradictory with Prime Minister Narendra Modi’s “Make In India” policy, while optimists applaud Trump’s decision to sink the Trans-Pacific Partnership (TPP), which excluded India. The release of the US trade representative’s (USTR) annual Trade Policy Agenda offers an excellent opportunity to test these assumptions against reality. The agenda and the accompanying annual report strongly suggest that India will be navigating an increasingly difficult trade terrain in the next few years—and that negotiations between US and Indian trade negotiators may resemble an irresistible force meeting an immovable object.

The Trade Policy Agenda lays out a general approach to trade that is, in its own words, aggressive and that in many cases appears to be strongly at odds with India’s own position. The document opens with a broadside against the World Trade Organization (WTO), arguing that WTO decisions are not binding on American businesses unless Congress chooses to implement them. This threatens to relegate the WTO to the long list of international agreements that the US has refused to make part of domestic law, gutting the strength of the organization and possibly triggering a round of punitive tariffs by other nations. India, by contrast, has made the WTO the primary focus of its trade negotiation efforts and is poised to make a major play towards updating the Trade in Services Agreement.

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The agenda highlights the US withdrawal from TPP as a sign of Trump’s commitment to a new trade order. Indian negotiators have expressed their belief that the end of TPP will make its South-East Asian partners more willing to sign on to a favourable Regional Comprehensive Economic Partnership (RCEP). The latest round of talks on RCEP offered glimmers of promise but no breakthroughs. Whatever the direct impact of TPP’s demise, India may find that the upheaval in the world trade order Trump’s approach will cause will far outweigh the benefit it gains from the end of TPP.

A second key section of the agenda decries the “significant barriers” facing American exports in many markets. India’s local sourcing rules, and its relatively high average tariffs (more than twice the world average), could certainly meet the description of “significant barriers”. The agenda promises to respond to such barriers by using “all possible leverage” to encourage trading partners to open their markets. The US is India’s largest goods export market, and the current debate over H-1B visas shows how vulnerable India is to a possible US clampdown on services exports as well.

Finally, breathing new life into an old debate, the agenda places strong emphasis on intellectual property protection, making it one of the new administration’s top 10 trade objectives. Although every US administration has been concerned about intellectual property protection, the Barack Obama administration soft-pedalled the issue to a certain extent. The agenda suggests that intellectual property will be back on the front burner.

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For long-time observers of US-India trade relations, the biggest India-specific development in this year’s report is that the brief section on US trade strategy towards India omits all mention of attempts to negotiate a Bilateral Investment Treaty (BIT). A BIT, which would set protections for investors, is a long-sought goal of US trade negotiators, and in the 2016 report, the USTR had pledged to “continue to assess prospects for moving forward with discussions on a high standard bilateral investment treaty”. In the intervening year, however, US and Indian negotiators met to discuss the texts of their respective BITs and determined that there was insufficient overlap between the two models to justify further discussions.

It’s important not to overstate the need for a BIT: Foreign direct investment in India has continued to climb in the year since India released a model BIT that was widely seen as offering too little protection to foreign investors. But signing an agreement could persuade some investors who are on the fence about entering India.

It’s important to note that the new Trade Policy Agenda was written quickly, in the first month of the Trump administration, and that Robert Lighthizer, Trump’s nominee for US trade representative, has not yet been confirmed. This means that while the broad strokes of the agenda reflect the President’s vision, the details are yet to be fleshed out. It’s also possible that the newly created National Trade Council, based out of the White House and led by well-known China trade hawk Peter Navarro, will take on some of the role once played by the USTR in setting trade policy. India, which has no free trade agreement with the US and was not part of the TPP, is relatively insulated from immediate upheavals in the Obama-Trump transition. Nor does it rank as high as China on the Trump administration’s list of perceived trade malefactors, so it is unlikely to come under the same pressure. But India is likely to find the US a less yielding partner in the quest to reach $500 billion in bilateral trade.

Sarah Watson is associate fellow, Wadhwani chair in US India policy studies, Center for Strategic and International Studies.

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