US, India withdraw 6 trade disputes: Will this bonhomie sustain over time?

When India and the US announced that they have agreed to withdraw six trade disputes at the World Trade Organisation (WTO) removing some of the trade barriers during Prime Minister Narendra Modi’s state visit last month, it almost made up for a mini trade deal that both sides could not agree upon during Modi’s visit to the US in 2019.

India and the US, despite their robust diplomatic ties, have quibbled on trade issues over the years and across administrations. Former President Donald Trump who pursued an “America First" approach was personally very vocal about the perceived high tariff walls that India put, often terming India the “tariff king".

But under President Joe Biden, the Indo-US trade relationship has significantly improved. Amid rising threat from China, the Biden administration has increased its engagement in the Indo-Pacific, making India the centre of the engagement. During her visit to India in November last year, the US treasury secretary Janet Yellen called it “friend-shoring” that aims to diversify away from countries that present geopolitical and security risks to the American supply chain.

“We are proactively deepening economic integration with trusted trading partners like India. Our strategy will also create redundancies in our supply chain to mitigate over-concentration risks. And we are also addressing our reliance on manufacturers whose approaches clash with our human rights values,” Yellen said.

So has the new-found bonhomie between the India and US fundamentally transformed the bilateral trade relationship?

“Enhanced cooperation on trade and technology with the US will take time. It will not happen immediately. They have a lot of problems on our digital trade policies. We have put an additional tax on their e-commerce companies. We have a restrictive policy on overseas data flow. Now we want to bring OTT (over-the-top) platforms under it also. The US has serious reservations on all these,” a senior government official said.

During her visit to India for the Trade Policy Forum meeting in 2021, United States Trade Representative (USTR) Katherine Tai highlighted key trade barriers that worried the US which still remain relevant. “At USTR, we hear frequently from our stakeholders on issues that will be familiar to those of you involved in moving goods and services between our two countries: market access restrictions, high tariffs, unpredictable regulatory requirements, and restrictive digital trade measures. These are issues where we need to make progress,” she said.

While India is negotiating free trade agreements with developed economies like the United Kingdom, the European Union, and Canada to leverage complementarity, there is no proposal for starting a comprehensive trade deal with the US.  

“Free trade agreements by their nature are very very extensive and require discussions and negotiations over a scope which is defined between the two countries. Discussions (with the US0 focussed on what measures do we take to expand our trade engagement, both in trade in goods and services. Also, what steps can be taken to ensure that the capital flows between the two economies increase and are made more efficient. But prospects of FTA is further down the line for both of us to build on and see how we can progress that,” foreign secretary Vinay Mohan Kwatra told media during Modi’s US visit.  

In the near term, two issues that both countries can work on to resolve are Generalised System of Preferences (GSP) and totalisation agreement. The US withdrew the duty-free market access benefits for specified products under GSP in 2019. After initially dismissing the withdrawal of GSP benefits as “not a matter of life and death”, India has again sought restoration of the benefits. “India highlighted its interest in the restoration of its status under the US Generalised System of Preferences program, which could be considered in relation to eligibility criteria determined by the US Congress,” the latest Indo-US joint statement during PM Modi’s visit said.

On a proposed totalisation agreement which will do away with the requirement for temporary workers in the US to contribute to the social security system in the US and vice versa, the joint statement said, “The leaders recognised the role of a social security totalisation agreement in protecting the interests of cross border workers and reaffirmed the intent to continue ongoing discussions concerning the elements required in both countries to enter into a bilateral social security totalisation agreement.”

At the WTO, however, both sides often find each other in opposing camps with India leading the so-called “global south” on food security, digital trade, and intellectual property among others. While India has insisted on restoration of the appellate body, settling the WTO disputes bilaterally may prove death knells to the highest adjudicating authority at the multilateral trade body.

India has stayed away from the trade pillar of the Indo-Pacific Economic Framework (IPEF) while engaging with the other three pillars including the supply chain. However, how it navigates the challenges that will come with increased integration of standards and regulations of both countries at different stages of their development journey to benefit from friend-shoring remains to be seen.