What a free trade pact with the US means for India

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Live Mint | 26 September 2018

What a free trade pact with the US means for India

by D.Ravi Kanth

When nations, except Israel, remain ill at ease with his trade and other wars, India seems eager to welcome him with folded hands on a red carpet. If anything, the Narendra Modi government reckons it is a national honour to make him the chief guest for the 70th Republic Day celebrations. It is, however, moot whether New Delhi can afford to pay the price for the Atithi Devo Bhava, à la Donald Trump.

It will become clear soon whether US President Trump will accept New Delhi’s invitation at a time when he seems mired in endless battles with his opponents at home and abroad. But in case he gives a green light for visiting India, it could result in several big-ticket deals, including on the trade front.

Aside the billions of dollars of likely defence purchases, subject to cancelling the proposed deal with Russia to buy S-300 missile defence systems, the two sides could agree to launch negotiations towards an eventual bilateral free trade agreement. Trump has already signalled a free trade agreement with India, though his spokesperson remained vague at a recent briefing.

Entering into negotiations for a free trade agreement with the world’s largest economy is not going to be a walk in the woods, nor a fireside chat. With “the US-India trade imbalance [in] bilateral trade growing all in India’s favour because barriers continue to keep [American] exports out of the market”, according to US commerce secretary Wilbur Rose, the US is bound to demand unimpeded “market access” to almost every sector in India.

For an administration that is most aggressively pursuing “America-first trade policies” through tariff wars, “fair and reciprocal market access” is the battle cry. With more than 200 million affluent consumers, India is a big market for American pharmaceutical behemoths like Pfizer. A free trade pact with India, as and when it materializes, will result in imposing stringent intellectual property protection norms in India, something that has proved difficult since 1986. Further, India is an important destination for the heavily-subsidized American farm and dairy suppliers. “India is a growing market for US agriculture, including beef,” the chief US agriculture negotiator Gregory Dowd had told the Senate Finance Committee last year, according to a report in Washington Trade Daily on 15 October.

It also provides a huge market to the American auto industries, including the Harley-Davidson motorcycles on which Trump forced Modi to reduce import duties. Then there are the high-tech industries, including in the medical equipment side, that will prefer to export their finished products, rather than setting up manufacturing facilities in India. Even in services such as e-commerce, including cloud computing, American internet giants such as Microsoft, Google and Amazon will demand uninterrupted market access. Clearly, there are a range of American industries in different sectors that are going to look with a hawk’s eye to prey upon the Indian market.

What will India secure in a bilateral deal with the US? Right now, India enjoys a trade surplus of more than $25 billion with the US. Surely, exporters in India can supply farm products, generic drugs, steel and auto products, and various other items, to the US. But, if the recent US-Mexico bilateral agreement is any indication, the US will allow access subject to various conditionalities, including quotas and minimum wages for workers. True, India enjoys a distinct advantage in supplying the short-term service providers for managing the American IT companies that are starved of manpower. But the Trump administration’s war against immigration, including the endless tightening of visa rules for IT professionals, could make it difficult for any assured access to the American market. Consider the numerous hurdles imposed by the Trump administration, particularly its escalation of visa fees on applicants for L-1 and H-BB categories for short-term services providers. The administration, according to news reports on 23 September, has told a federal court that within the next three months it will revoke work permits given to H-4 visa holders issued to family members of the holders of the H-1B visas.

The US is not even prepared to sign a totalization agreement with India for protecting rights of short-term IT and other services providers who divide their working career between two or more counties. In short, agreeing to enter into negotiations for a free trade agreement as a prize for Trump’s visit to New Delhi, could tie the hands of successive administrations in New Delhi for years to come with incommensurate gains. Moreover, it could permanently damage India’s regional and multilateral trade priorities.

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source: Live Mint