Trade grows but hurdles remain

Trade grows but hurdles remain

New Delhi: President Barack Obama is visiting India at a time when the US has become defensive on international trade issues, and differences between the two countries at multilateral trade fora have widened.

Hit by the financial crisis, which caused the US economy to contract by 2.4% in 2009 and unemployment rate to soar by 10%, Obama adopted a “Buy America" policy emphasizing the use of US-produced iron, steel and manufactured articles in public works and public buildings.

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The highly criticized policy, however, extended beyond its publicly stated objective, and, in the name of safeguarding borders and creating local jobs, started targeting companies outsourcing work to foreign territories and employing foreign workers in the US. While the US President pushed a Bill through Congress hiking working visa fees for companies employing more than 50% non-US citizens in the name of securing its border with Mexico, the Ohio state government banned offshoring official information technology (IT) and back-office projects.

Both the moves, in effect, targeted Indian IT companies that earn half their revenue from the US, employing thousands of Indians as well as American professionals. This irked the Indian government to the extent that Indian commerce minister Anand Sharma called it “highly discriminatory" and commerce secretary Rahul Khullar threatened to take the US to the World Trade Organization (WTO).

“We are deeply disheartened and very disappointed. The US cannot pass a law which clearly hurts India’s interests and then realistically expect us to accommodate their commercial interests," Khullar had said on 17 August.

Not much has changed since then, and Khullar’s statement highlights why there are very low expectations on the trade front from the upcoming presidential visit.

A subsequent meeting of the trade policy forum between the two countries saw both sides reiterating their positions and India asking the US to resist domestic pressures to increase barriers to trade.

A commerce ministry official, though, played down the issue. “A presidential visit is not meant to resolve all outstanding issues. These are not the big ticket items. The big issues on the table are the civil nuclear deal, access to dual-use technology and the totalization agreement," he added.

While the denial of dual-use technology prohibits India from accessing crucial high- end technologies for civilian use, an agreement on totalization will link the social security systems of both countries and enable Indian IT professionals to draw benefits from their contributions in the US.

However, trade experts say it will be difficult for the two countries to shy away from growing differences on the trade front. “Prospects of any progress on trade issues is rather dismal. There is very little positive that we can see," said Biswajit Dhar, director-general at the Research and Information System for Developing Countries. “Even we expected the nuclear deal to give a positive spin to bilateral trade relations, but it could not," he added.

However, Suresh Kumar, assistant secretary for trade promotion and director general of the US and Foreign Commercial Service, makes light of the growing differences between the two sides. “Things are humming. At every level, our engagement is terrific," Kumar said, quoting the healthy bilateral trade figures.

India’s trade with the US has tripled from $12.1 billion (around 53,200 crore) in 2000-01 to $36.4 billion in 2009-10, even though the US has lost the top spot to the United Arab Emirates and China among India’s trading partners. The US is also the third largest source of foreign direct investment (FDI) into India, contributing $1.9 billion out of $25.8 billion in 2009-10.

Despite the US remaining India’s largest trading partner for many years, the two countries do not have a bilateral trade agreement, although India has recently signed a comprehensive trade pact with Japan and is negotiating one with the European Union.

Dhar said there is no likely progress on that front as the US is too defensive on trade and India is unlikely to gain anything if it pushes for such a deal at this juncture.

Kumar said the US does not see the need for a bilateral trade agreement as a driving force and would rather focus on greater business engagement.

Anwarul Hoda, professor at the Indian Council for Research on International Economic Cooperation, said in a probable free trade agreement between the two sides, the high standards that the US may demand in the fields of intellectual property rights (IPRs), labour and environment may be difficult for India to comply with.

The US has been pressing the point that India continues to limit market access in various sectors through non-tariff barriers such as high border taxes and tariffs, FDI limits and poor copyright and patent provisions.

Kumar said India should liberalize multi-brand retail, insurance and the education sector.

At the multilateral level also, differences have widened between the two countries. India, joining hands with China, refused to accept the US formula for sharing the burden of reduction in carbon emission at the Copenhagen summit on climate change in 2009.

“The real problem is the United States. It’s not in a position to provide political leadership. It does not have the legislation in place. Its commitments (on climate change) are not up to the mark," Jairam Ramesh was quoted as saying by the India Today website on 27 September.

India and the US have also been at odds with each other at WTO. While the US blames India for the breakdown of the Doha Round of talks in 2008 on the issue of agricultural import regulations, India has been recently opposing the US move to expand the scope of negotiations by making tariff reductions mandatory in manufacturing sectors.

The US wants emerging economies like such as India and China to undertake greater commitments to cut tariff rates than earlier envisaged. India has strongly opposed any move to change the development mandate of the trade talks. “Any attempt to change the trade-opening proposals, for which a consensus was reached in 2008, could impact the speedy conclusion of the Doha Round," commerce minister Sharma recently said.

India is also closely watching ongoing negotiations for the proposed Anti-Counterfeiting Trade Agreement (Acta)—spearheaded by economies such as the US, the EU and Japan—to enforce stricter standards on IPRs. India considers this as an attempt to undermine multilateral agreements on the subject under WTO and World Intellectual Property Organization.

“It is sad that the US is not taking India into confidence regarding Acta. I do not think it is actionable," Hoda said.

Acta may just be the latest irritant in India’s already tense trade relations with the US.

Elizabeth Roche contributed to the story.