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US President Donald Trump. Photo: AFP
US President Donald Trump. Photo: AFP

New Delhi wants trade pact to keep US happy: Trump

US President says India wants a free trade agreement on the likes of the USMCA

Geneva: US President Donald Trump has spilled the beans that India wants to enter into a free-trade agreement to satisfy him on the lines of what Mexico and Canada agreed in the just-concluded USMCA—the US, Mexico, Canada Agreement.

Speaking from the Rose Gardens in the White House on Tuesday, Trump proudly announced that “India, which is the tariff king, they called us and they said, ‘we (India) want to start negotiations immediately’."

India wants to keep him happy, said Trump, pointing out that “India charges tariffs 100%, and then if we want to put a tariff of 25% on (steel and aluminium)" people in the Congress protest that it is not free trade. “They (India) have to keep us happy, because they understand that we’re wise to what’s been happening," Trump said.

He claimed the USMCA will pave the way for securing “fair and reciprocal market access" on America’s terms.

The USMCA, though a tentative agreement, will replace the existing North America Free Trade Agreement that was concluded in 1994, with new rules for patent protection for drugs, particularly biologics, complex rules of origin for determining the national source of a product, and labour and environmental standards.

It comprises 34 chapters, including side letters between the US and Mexico and Canada, setting new conditions and market-opening norms for complying with Trump’s America First trade strategy.

The USMCA will serve “as a template for all future trade agreements…. That template has three main focuses—“rebalancing" US trade relationships, “ambitious" provisions dealing with 21st century issues like digital trade, and combating unfair trade practices, according to a report in the Washington Trade Daily on Monday.

Inclusion of labour and environment standards, which India has opposed since the World Trade Organization (WTO) Seattle ministerial meeting in 1999, could pose a systemic threat for developing countries in international trade, particularly India which has one of the lowest paid wages, several analysts familiar with the new agreement said.

At a time when New Delhi is toying with the idea of entering into negotiations with Washington towards an eventual bilateral free trade agreement, the USMCA offers a taste of what India can expect in areas of labour and environment.

“Trump’s pronouncements cast India in poor light and are damaging for the Indian government’s credibility," said an analyst who requested anonymity.

The USMCA includes a chapter on continuing with the dispute resolution mechanism as demanded by Canada. But given the manner in which the US paralysed the WTO’s dispute settlement mechanism by taking the oxygen out of the Appellate Body, the highest adjudicating arm for resolving global trade disputes, it is highly unlikely that the US will stick to its new commitments in the USMCA, said a Geneva-based analyst who asked not to be named.

The USMCA includes quotas as well as several other provisions such as stringent patent protection rules for pharmaceutical products and biologics.

From the details announced on late Sunday evening, Canada has agreed to offer significant market access for American dairy products by agreeing to eliminate its Class 7 pricing programme for ultra-filtered milk.

Canadian tariffs on dairy imports are as high as 300%, exceeding the established quota.

Trump has repeatedly denounced the dairy tariffs as having undermined American dairy exporters.

As regards the US Section 232 tariffs on steel and aluminium, which were challenged by both Canada and Mexico, it is not clear yet whether Canada has been able to secure an exclusion. Canada has also not been able to secure a guarantee that the US will not impose Section 232 tariffs on autos. The discussions on Section 232 tariffs on steel and aluminium are continuing, according to the report in the Washington Trade Daily.

Further, on the issue of the proposed section 232 auto tariffs, Canada agreed to a side letter with the US accepting quotas on it auto exports to the US in the event that Washington does go ahead with section 232 tariffs. “Only autos that do not meet the agreement’s new rules of origin for autos would potentially be subject to the tariffs," according to the WTD.

The biggest impact, according to the US trade officials, is going to be in the auto section that stipulates conditions such as manufacturing of greater portion of vehicles in the three countries and with high-wage labour in the US and Canada.

Also, the inclusion of tough labour and environmental conditions are bound to have an adverse effect on Mexico more than Canada. The agreement is also a boon to the US financial services industry as USMCA will prise open restricted Canadian market for American banks.

The USMCA also includes new rules for digital businesses, a victory for Amazon, Microsoft, and Google among others.

The moot issue is whether India will be able to agree to such controversial conditions that would offer substantial market access to the US for wiping out its $25 billion trade deficit with India.

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