By Abhijit Das, The writer is an international trade expert
In the context of finalising the first phase of the India-US trade deal, Commerce Minister Piyush Goyal has recently stated that “when the deal will become fair, equitable and balanced, you will hear good news”. If the agreements signed by President Trump with Malaysia and Cambodia in the last week of October are indicators, the possibility of the US agreeing to a fair, equitable, and balanced trade agreement with India, or most other countries, appears remote. Let us examine this issue.
At the outset, it is crucial to recognise that there is considerable similarity in the contents of the bilateral agreements of the US with Cambodia and Malaysia. Many provisions in the two agreements are almost identical. It would, therefore, not be incorrect to conclude that President Trump and his officials are negotiating trade agreements with various countries based on a common template—a longstanding tradition of the US in the past free trade agreements negotiations. Consequently, it is unlikely that the substantial contents of the India-US trade agreement would be very different from the Cambodia-Malaysia template. Of course, on certain issues there could be India-specific variations. As discussed below, it is difficult to accept the Cambodia-Malaysia template as being fair, equitable and balanced.
First, with Malaysia and Cambodia making most of the concessions on tariffs and in many other areas, both the agreements are one-sided and riddled with provisions that are overwhelmingly in favour of the US. For example, under the deal, the US will cut its reciprocal tariff to zero on only about 1,700 Malaysian products; all other products will continue to face a 19% reciprocal tariff. Malaysia, however, will eliminate its World Trade Organization-mandated most-favoured nation (MFN) tariffs on US goods, while Washington will retain its MFN tariffs on Malaysian products. In essence, Trump is rolling back his illegal reciprocal tariffs on a part of Malaysian exports while Malaysia has rolled back its MFN tariffs for US goods.
Second, under the bilateral agreements Malaysia and Cambodia have ceded their right to raise tax revenues through specific policy instruments. Both countries have committed not to impose customs duties on electronic transmissions, digital services taxes, or similar taxes that discriminate against US companies. Further, they have given up their right to impose certain internal taxes on imports and collect them at the customs border, especially if the taxes discriminate against imports from the US. This situation could arise, for example, when the US is the exclusive or predominant exporter of a product to these countries. In addition, Malaysia has committed not to impose consumption tax on US exports of agricultural and seafood products. There is no reciprocal commitment from the US on these issues.
Third, in respect of trade in agricultural products, Malaysia has 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 Malaysia’s domestic health and sanitary requirements. This is a one-sided concession, as the US has not made a commitment in respect of imports of these products from Malaysia.
Fourth, and perhaps the most contentious, some provisions in the two agreements firmly align the policy choices of Cambodia and Malaysia in certain areas with the economic and national security interests of the US. To illustrate, if the US imposes a customs duty or import restrictions on a good or service of a third country, Malaysia and Cambodia have committed to regulate the importation of that good or service into their territories through similar measures with equivalent restrictive effect.
Consequently, if on the ostensible ground of protecting its economic security, the US were to impose a punitive tariff of 30% on imports from the BRICS countries, Cambodia and Malaysia would be compelled to impose similar tariffs on imports from BRICS countries. Further, both countries have agreed to cooperate with the US with a view to restricting transactions of their nationals with third-country individuals and entities which have been sanctioned by the US. Both countries are also 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. In addition, Malaysia has committed not to enter into agreements with other countries involving technical or health standards that might disadvantage the US.
An argument could be made that since the Cambodia-Malaysia template is not subject to binding dispute settlement, it provides considerable leeway to countries not to adhere to inconvenient provisions in their bilateral deals with the US. This strand of argument is, at best, naïve. We are living in times when the US does not need the legal backing of international law to enforce its writ. It has used its considerable political clout and economic heft to bend countries to its will. The absence of binding dispute settlement provisions in bilateral agreements is unlikely to hinder the US in compelling signatory countries to uphold their side of the deal.
In conclusion, if the US uses the Malaysia-Cambodia template as the basis of its negotiations with India, it would be very difficult for India to secure a fair, equitable, and balanced bilateral trade deal. Further, there appears to be no middle ground on the four issues mentioned above, which would allow the US to claim victory and India to protect its domestic interest. Tough choices appear to be knocking at the doors of India’s trade negotiators.
With President Trump publicly acknowledging that India has sharply cut Russian oil purchases, New Delhi should push Washington to roll back the 25% Russian oil penalty. This single step would ease the pressure on India’s negotiators. Thereafter, India should consider whether lowering America’s “reciprocal” tariff on Indian goods from 25% to roughly 15-18% is worth the concessions the US is demanding. This approach would help India avoid the kind of one-sided deals struck with Malaysia and Cambodia.