Now’s a good time for India, US to strike a deal; this real irritant must be dropped to reach consensus

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August 31, 2020 10:17 AM

The U.S.-India trade relationship in the Trump era has been dismal — partly because Indian trade officials have been slower than their counterparts in Europe or even China to figure out how to use America’s electoral divisions to their advantage.

If India at least promised to drop the real irritants — non-tariff barriers that prevent the import of most American dairy products — the two countries might get somewhere.

America’s elections provide a narrow window of opportunity for its trading partners. Across the world, negotiators will have seen a man from Maine given a prime spot at the Republican National Convention: Lobsterman Jason Joyce spoke about how President Donald Trump had “brokered a deal to end European Union tariffs of 8% on Maine live lobsters and up to 20% on Maine lobster products.” It is no coincidence that, in 2016, Trump won only one of Maine’s four electoral college seats.

Trump, behind in the polls, is desperately trying to moderate the effects of his poorly considered trade war on crucial voters. The world’s trade bureaucrats should have had pen in hand on the second day of the RNC: Miners, fishermen and farmers from states that Trump considers electorally important took turns in the spotlight. Figure out what they want, give the U.S. president something he imagines he can sell to them and you have an opportunity to get a quick deal through. That’s clearly what the EU had in mind when it signed a “mini trade deal” that, in return for a concession on lobsters, got the U.S. to commit to slashing a range of tariffs in half.

Here in New Delhi, time to strike a similarly advantageous deal is running out. The U.S.-India trade relationship in the Trump era has been dismal — partly because Indian trade officials have been slower than their counterparts in Europe or even China to figure out how to use America’s electoral divisions to their advantage. India’s commerce minister insists that we are “almost there” on a “quick trade deal”; writing in the current issue of Foreign Affairs, however, U.S. Trade Representative Robert Lighthizer complains that India is “at times, a troublesome trading partner for the United States.”

Agricultural imports are the sticking point. What Indian negotiators have offered Washington is apparently a “step-by-step reduction in import duties” on high-value products. And they’ve tacked on a ton of other concessions, including a discussion on reducing tariffs on technology products. A better strategy, though, might be to focus on an immediate, targeted package that could be struck before the U.S. vote. In that case, minimal concessions could result in a big payoff.

An obvious target would be the dairy sector. (Hello, Wisconsin!) One report suggests Lighthizer wants India to promise to buy $6 billion worth of U.S. agricultural and dairy goods. While that would put a sizeable dent in the trade deficit the U.S. runs with India, it’s the kind of pledge that’s difficult for a market economy to make. Even the Chinese are struggling to fulfill their promise, made in January, to buy $36.5 billion worth of U.S. agricultural goods.

Yet, if India at least promised to drop the real irritants — non-tariff barriers that prevent the import of most American dairy products — the two countries might get somewhere. The problem is, unsurprisingly, electoral politics on the Indian side: Given that Indian election campaigns can revolve around “cow protection,” the Indians want the U.S. to agree that no dairy imports will come from cows fed on animal protein. Everyone knows what the compromise will have to be: some form of labelling. If, after that, Indians still don’t consume U.S. dairy products, that’s just how the market works.

Once that issue is resolved, a lot of other options would open up. India’s exporters, for example, want to be included once again under the Generalized System of Preferences, which allows some developing countries preferential access to the U.S. market. The Trump administration expelled India last year citing the country’s “failure to provide the United States with assurances that it will provide equitable and reasonable access to its markets in numerous sectors.” Only if there’s a chance of winning other concessions would any administration, not just Trump’s, restore India’s access.

Indian negotiators should remember, too, that whichever way the U.S. elections go, it’s vital for India in particular to build momentum toward easing trade tensions. India, locked into an increasingly grim economic and military confrontation with China that it knows it cannot sustain on its own, needs as many friends as possible. Indian politicians understand their own electoral constraints intimately. Now, they need to understand America’s.

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