India in a catch-22 situation on free trade pact with the US

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BusinessLine | 16 September 2018

India in a catch-22 situation on free trade pact with the US

by Amiti Sen

The government seems to be in two minds about whether it should go in for a free trade agreement (FTA) with the US. While many officials are against a pact as they believe it will hurt domestic industry and agriculture, there is a small but influential group in the government that favours an FTA, according to two sources aware of the developments.

“There must be a larger debate and consultations involving other ministries and departments as well as industry and farmer groups in case the Commerce Ministry wants to get into negotiations on a free trade pact with the US. A trade agreement with such a powerful nation will have huge economic as well as political repercussions and is not to be taken lightly,” a Delhi-based trade expert told BusinessLine. Although India, because of its indecision on the matter, has not officially spelled out its intention to get into a free trade dialogue with the US, there are indications from the White House hinting at some informal talks on trade deals already happening between the two countries.

US President Donald Trump said at a recent event in South Dakota that India had expressed interest in a trade deal with the US for the first time.

India-US 2+2

White House Press Secretary Sarah Sanders told reporters at a news conference a few days after the India-US 2+2 dialogue on defence, economic and strategic issues that India and the US had expressed their willingness to negotiate new and better trade deals, and those conversations are at the beginning stages.

“The US has been trying hard over the recent years to persuade India to get into a free trade pact as not only would it result in a wider market for products such as farm and dairy items but also give it a handle to try and make India change its policies on intellectual property, retail and investments. All this needs to be carefully considered,” a government official said.

The group within the Indian government, which is pushing for the free trade pact, is looking at the increased access that could benefit the Indian industry in areas such as textiles, leather and gems and jewellery and possible geo-political and diplomatic gains.

“What has to be understood is that whatever increased market access the Indian industry may get in a handful of areas would be relatively miniscule compared to the policy space that we stand to lose. Moreover, on geo-political issues, there is no guarantee that a FTA will make the US tow India’s line. We might end up being at the receiving end with the US trying to dictate terms to us,” the trade expert added.

Apart from areas such as dairy and medical equipment, where the US industry is trying to push India to change its domestic laws to gain access, India’s generic drugs industry is a sector that could be hit by an FTA with the US.

Over the last few years, the US has been trying its best to make India change its patent laws and adopt less stringent rules on ever-greening of patents. Ever-greening refers to superficial changes made by a company on a pharmaceutical product whose patent has ended to help it get a fresh patent.

India exported goods worth $48.88 billion to the US in 2017-18, while its imports were to the tune of $26.61 billion. With pressure from the Trump administration on India to reduce the trade deficit, the trade gap has actually reduced in the April-July 2018-19 period by $1.5 billion with India buying more from the US, including oil.

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source: BusinessLine