Prior to the maiden visit of President, Donald Trump to India [February 24 – 25, 2020], there was a sense of dejection about the possibility of US and India signing even a limited trade deal not to talk of a ‘big deal’. This is to be seen in the backdrop of the United States Trade Representative [USTR], Robert Lighthizer [the point man who has the onerous responsibility of formulating US trade policy and negotiating trade pacts with countries world-wide] not being part of the delegation. Earlier, Lighthizer had cancelled a visit to New Delhi when he was scheduled to wrap up discussion on a trade deal.
However, on conclusion of the visit, the mood is buoyant. This was reflected in the press statement by Prime Minister, Narendra Modi on February 25, 2020. He stated “as far as bilateral trade is concerned, there have been positive talks between the two commerce Ministers. President Trump and I have agreed that our teams will give a legal shape to the understanding that our Commerce Ministers have reached. We have also agreed to start negotiations for a big trade deal. We hope that it will yield good results in mutual interest”.
So, what is the understanding reached between the Commerce Ministers on either side? What is the time frame for reaching a limited trade deal? What is the big trade deal? When will it happen?
Participating in the ‘US-India Forum: Partners for Growth’ on February 25, 2020, Commerce Minister, Piyush Goyal opined “On the economic front, having almost closed the last contours of the limited trade deal and with the announcement of a much larger trade deal in the offing, we have moved to a new level of engagement”. The deal could include restoration of benefits of low or zero duty to certain Indian exports under the Generalized System of Preferences [GSP] and market access for each other’s agricultural products including pulses, dairy, almonds, walnuts etc [items of interest to US], fruits viz. pomegranate, grape etc [of interest to India].
Even as the limited deal is largely about goods and market access, the big deal – call it Free Trade Agreement [FTA] – is all encompassing going much beyond goods and also incorporates inter alia intellectual property rights [IPRs], investment and services including issues related to visas and manpower movement. The USTR has begun the filing process to initiate FTA talks. As per extant rules, the US Trade Promotion Authority requires the administration to notify Congress 90 calendar days prior to entering into a trade agreement.
Staying clear from the optics and bonhomie on display all through, one gets a sense that the road to even a limited trade deal is thorny. At a fundamental level, both Trump and Modi are hard core nationalist and have increasingly leaned towards ‘protectionism’ [even as in their posturing they talk of ‘free’ and ‘fair’ trade; this was seen in the address by each on Feb 25]. While, the former has orchestrated his policies under “Buy American, Hire American”, the latter does it under the ‘Make in India’ banner.
Trump has unilaterally taken a number of steps which seriously undermine the multilateral rules of ‘free’ and ‘fair’ trade under the World Trade Organization [WTO]. These include rejecting the demand of developing countries for finding a ‘permanent solution’ to stock-holding for food security despite a decision at the 9th WTO ministerial held in Bali [2013]; hike in customs duty on steel and aluminum to 25% and 10% on imports [sans preferred friends of USA]; review of the H-1B visa program to restrict the entry of foreign specialists/professionals to only ‘most-skilled and highest-paid applicants’.
Early last year, the US also asked WTO to do away with the extant Special and Differential Treatment [S&DT] available to developing countries. The S&DT enables the latter to give less than reciprocal commitments. A major plank of this special dispensation is a fairly liberal threshold of 10% aggregate measurement support [AMS] – an acronym for subsidies in WTO parlance – for agriculture for developing countries as against 5% for developed countries. If, S&DT is withdrawn, India will have to limit its subsidies to less than 5% of the value of agricultural production against 10% currently.
Last year [June], Trump also withdrew the over 5 decades old special dispensation viz. GSP available to developing countries [including India] under which they are eligible for export of specified products such as textiles, leather footwear etc to USA at low or ‘zero’ customs duty. Justified on the ground that India is no longer a developing country, it has affected Indian exports worth US$ 5.6 billion.
The US under Trump administration has also blocked appointment of members of the appellate authority of WTO dispute settlement body [DSB] – an authority for adjudicating disputes arising from non-compliance with WTO rules. At present, there being just one member in the body against the required strength of seven, the dispute resolution process has come to a grinding halt.
India too has pursued its protectionist agenda with alacrity. Thus, it levies high customs duty on import of electronic items especially mobile phones, dairy products and automobiles [e.g. Harley Davidson bikes in which Trump has keen interest]; control on the price of medical equipment viz. stents, knee implant etc; restrictive policy on foreign direct investment [FDI] in e-commerce; localization of data generated from transactions by international digital and payment companies from their operations in India; lack of effective enforcement of laws for protection of IPRs especially patents; absence of a law on data protection etc.
In pursuit its “Buy American, Hire American” mission, Trump is seeking to do away with special privileges available to developing countries under the WTO and undermining the authority of this multilateral body on the one hand and extracting concession for its industries and businesses under bilateral deals with individual countries on the other. Modi seems to be equally determined to protect the interests of its industries and consumers and has even taken recourse to retaliatory measures. For instance, after US hiked tariff on steel and aluminum, India imposed duties of up to 50% on 28 products including almonds, walnuts, apple etc.
The tit-for-tit syndrome can be seen from the US side as well. For instance, the withdrawal of GSP dispensation by Trump was triggered by changes in India’s policy on 100% FDI in e-commerce ‘market-place’ vide December 26, 2018 circular amending the Press Note 3 [2016-17] to say that ‘the marketplace can’t have ownership of the vendors selling on the platform’; nor it can have ‘exclusive’ arrangement with the latter. This hit the US based MNCs viz. Amazon, Walmart forcing them to rework their business plans; hence the retaliatory action by US.
In areas such as 100% FDI in multi-brand retail [MBR] – offline and online; localization of data generated by international digital and payment companies from their operations in India; effective enforcement of laws for protection of IPRs especially patents and law on data protection [this is mainly with respect to the data generated and submitted by MNCs in pharmaceutical and agrochemical sectors to the national regulators viz. Drug Controller General of India (DCGI) and Central Insecticides Board & Registration Committee (CIB&RC) to seek approval for marketing of their new products in India], the gulf between the stance taken by US and India is even wider.
Citing the dire need to protect the interests of millions of small traders, India has ruled out 100% FDI in MBR. On data generated by international digital companies, while India would like them to retain all critical data with Indian servers and even set up local office, Trump is uncomfortable with the idea. On protection of IPRs, even as India has kept the Section 3(d) in the Patent (Amendment) Act 2005 [this is to prevent grant of frivolous patent or ‘ever-greening’ – as it is understood in common parlance], US wants this to go. On data protection, another demand vociferously put up by the USTR [albeit on behalf of US-based MNCs], India is in no mood to oblige stating that this goes even beyond what has been agreed to under the TRIPs [traded related intellectual property rights] agreement of the WTO [1995].
Given these positions which are poles apart, the FTA – so called ‘Big Deal’ as Trump put it – that too before this year end sounds like day dreaming. A limited deal with some concessions on both sides could be done within this time frame. However, from the statements emanating from ‘key persons’, it would appear that even this idea has been put on the back-burner for now.