By Abhijit Das
The announcement by President Donald Trump that the US will reduce the reciprocal tariffs on India from 25 % to 18%, and its confirmation by Prime Minister Narendra Modi, marks a significant step forward in India-US bilateral partnership. Compared to most of its competitors who continue to face slightly higher reciprocal tariffs, the trade deal will reduce the disadvantage being suffered by India’s exports of textiles, leather, gems and jewellery, etc. to the US market. This should bring considerable cheer to these sectors, especially the labour employed in them.
Agriculture, GM Crops and Health Standards Under the Lens
As with any agreement, the India-US trade deal is expected to involve trade-offs, with both parties extending concessions to each other. It is, therefore, important to discuss the concessions that the US may have wrested from India and their implications. President Trump has mentioned the following three important concessions made by India: first, reducing tariffs and non-tariff barriers against the US to zero; second, purchasing over $500 billion worth of US energy, technology, agricultural, coal, and other products; and third, India agreeing to stop buying Russian oil and instead buy more energy from the US and potentially Venezuela. India has not confirmed these concessions. While we await the final text of the India-US trade deal to get the details, what should be some of the main points to lookout for?
First, which agriculture products would be subject to India’s zero-duty tariff regime for the US? In case India has agreed to provide import quotas for certain US agriculture products, what is the size of the quota that has been agreed to as compared to India’s domestic consumption and has a floor price for the in-quota imports been negotiated? These questions are relevant for understanding how India’s concessions might have long-term impacts on the livelihoods of millions of its farmers, especially those engaged in the dairy sector or growing apples, cotton, maize, soya beans, etc. In this context, US Agriculture Secretary Brooke Rollins’s statement that the trade deal will improve access to American farm products to “India’s massive market” may raise concerns.
Second, how has the demand of the US to facilitate imports of genetically modified (GM) products been addressed in the agreement? Will India be required to put in place a more predictable regulatory regime for according approvals for GM products, or will India retain the right to make decisions on this issue on a case-by-case basis?
Third, in respect of trade in agricultural products, has India committed to allow imports of dairy, meat, and poultry products from the US if they are accompanied with the sanitary/health certificates from the relevant American authorities? This concession implies that the US certification would prevail over India’s domestic health and sanitary requirements—a key concession contained in Malaysia-US trade deal.
Fourth, it is crucial to understand whether the India-US deal promotes the US objective of evergreening patents, thereby eroding India’s generic pharmaceutical industry through commitments related to how India determines eligibility for the grant of patents and conditions for granting marketing approval for pharmaceuticals. Concessions on these two issues could have adverse implications for access to affordable healthcare for the common person in the street.
Digital Trade, Patents and Strategic Autonomy
Fifth, it would be important to examine whether India’s commitments would hamper its ability to raise revenue from the digital sector, and also curtail its ability to promote domestic players in this sector. To illustrate, would the deal require India to change its long-standing position at the World Trade Organization (WTO) and agree to a permanent moratorium on imposing customs duties on electronic transmissions? Further, would India be permanently prohibited from imposing digital services tax, along the lines of the erstwhile equalisation levy on digital transactions? In addition, does the trade deal involve commitment on data-sharing and cross-border data flows?
Sixth, some of the recent bilateral trade deals of the US include provisions that seek to align trade and foreign policy options of the partner countries in line with the interests of the US. In this context, for assessing the implications of India-US trade deal, getting answers to the following questions would be relevant: Would India be required to consult with the US before entering into a new digital trade agreement with another country, in order to ensure that the agreement does not jeopardise the essential interests of the US? Has India agreed to cooperate with the US with a view to restricting transactions of its nationals with third-country individuals and entities which have been sanctioned by the US? And if the US imposes a customs duty or import restrictions on a good or service of a third country, has India committed to regulate the importation of that good or service into its territory through similar measures with equivalent restrictive effect?
It should be noted that the 18% reciprocal tariffs would continue to violate multiple commitments of the US at the WTO. India has now joined the group of countries whose deals with the US are gradually eroding the most-favoured nation non-discriminatory principle of the WTO. This will have long-term systemic implications for future multilateral trade negotiations, especially by creating room for power play instead of a rules-based system.
In conclusion, the US reducing the reciprocal tariffs on India, along with the withdrawal of the 25% penalty for purchasing Russian oil, should provide considerable relief to Indian exporters. Based on the text of the India-US trade deal, answers to the questions raised above would help us obtain a better understanding of the concessions granted by India in return for the US lowering its reciprocal tariffs against India to 18%. However, predictability associated with the deal would remain only as long as Trump does not impose additional illegal tariffs on India in future for any of its actions that he might perceive to be against US interests.
The writer is an international trade expert
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.