Washington ready to discuss preferential trade deal with India: US Ambassador

US Ambassador to India Eric M. Garcetti. (Photo: @USAmbIndia/X)
US Ambassador to India Eric M. Garcetti. (Photo: @USAmbIndia/X)

Summary

  • Trade between India and the US could shoot up to $400-500 billion by the end of the decade if some steps are taken by both countries. After the elections in India, the US government is likely to start pushing for the trade agreement.

New Delhi: The US government is ready to hold discussions with India for a preferential trade agreement between the two countries, according to the country's top envoy, who hinted at things starting to gain momentum after a new government takes charge in India.

“There's not a huge appetite in Washington for free trade agreements (FTAs)," US Ambassador to India Eric M. Garcetti said in an interview. "But I do think that there's an openness in Washington to advance a discussion about preferential trade between our countries. And so, I look forward to a new government here, and our people stand ready, willing and available to begin those sorts of scoping discussions."

Preferential trade agreements and FTAs both seek to liberalize trade, but the former is more focused on specific products or sectors while the latter has a broader coverage.

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Lowering of tariffs by both countries and India emerging as a low-cost producer in areas like electronics and for components in the clean energy sector would help in scaling up bilateral trade while accelerating India’s economic growth, Garcetti added. These could also help double bilateral trade (comprising both merchandise and services) between India and the US to $400 billion or even $500 billion by the end of decade, he said.

Currently, the US is India's biggest trade partner, with almost 18% or $77.5 billion of India's goods exports going to the country in FY24, a decline of 1% year-on-year in a fiscal that saw India's overall exports shrink by 3%. With $41 billion of imports from the US in the year ended March 2024, India has a merchandise trade surplus with the US the only such instance among India’s top five trading partners. India has trade deficits with the other four top trading partners, namely China, UAE, Russia and Saudi Arabia.

Warming up to each other

Trade relations warmed up last June when the two countries bilaterally settled six trade disputes. Subsequently, India in September lowered the basic customs duty on items such as apples, almonds, lentils and chickpeas imported from the US as part of removal of retaliatory duty imposed on US exports in 2019 after the US raised import duty on certain items. The duty cut was done ahead of Prime Minister Narendra Modi’s bilateral meeting with US President Joe Biden during the G20 summit.

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In a reference to past trade disputes and certain customs tariffs, Garcetti said the two tend to get a little defensive at times despite having much to gain through increased trade.

Commenting that India's trade tariffs are still "very high" compared to the rest of the world, the ambassador said the two countries need to break down those boulders that trip them time and again "in this very warm moment between our countries".

Partnering the US and others

India is already negotiating the Indo-Pacific Economic Framework (IPEF), an ambitious trade agreement with the US and 12 other countries, but tariff concessions are not part of this as the US did not want it, explained Ajay Srivastava, founder of Global Trade Research Initiative (GTRI), a research group focused on climate change, technology and trade. Most of the negotiations for this treaty are complete.

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“Under IPEF, countries have negotiated multiple issues under four subjects--trade, supply chains, clean economy and fair economy. India is negotiating all pillars except trade," said Srivastava. "Since the US has not agreed to include tariff negotiations in IPEF, it may not favour a separate FTA that deals with tariff concessions. India's selective engagement in the IPEF allows it to maintain control over its tariff policies while benefiting from cooperation in other critical areas."

The other IPEF members are Australia, Brunei, Fiji, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea, Thailand and Vietnam.

Pushing India's growth

In a veiled reference to China, Garcetti said India needs to be a leader in low-cost production of electronics and energy components, "to wean ourselves off the dependence of autocratic countries that have human rights issues and also because it will be good for India's rise".

He said India is growing but faster growth will help in meeting the requirement for more jobs. “We want to help India get closer to 10% (growth rate)," he said.

Talking about a scenario 20 years from now, Garcetti said, “If India was the shop floor for good quality solar cells for electric vehicles for the region and for the world at low cost, what would it look like for us to be able to have American manufactured components for electronics come here, combined with Indian manufactured components and be low cost leaders for the things that drive our lives, from semiconductors in our cars to air conditioners that cool our homes?"

It is not just trade, but cross-border investments, too, are top on the agenda for both the countries, Garcetti said, “Indians are now the biggest delegation to our annual ‘Invest in US’ conference, ‘Select USA’."

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