By Anwarul Hoda

Although the ongoing India-US negotiations for a bilateral trade agreement (BTA) were set off by the joint statement by Prime Minister Narendra Modi and President Donald Trump on February 13, the talks are not of India’s seeking. India was pushed into the talks by the US President’s high-decibel criticism of its tariff levels. With Trump launching the mega-show on reciprocal tariffs on April 2, the bilateral talks slid into the position of a sideshow.

The dialogue is now well on course and the first meeting of high officials has already been held at New Delhi between March 26 and 29. According to reports, the talks have moved on and the parties are now engaged in sectoral expert-level virtual talks. The India-US Joint Statement dated February 13 sketched out the broad agenda of increasing market access for both sides. There is specific mention of the objective to increase US exports of industrial goods and Indian exports of labour-intensive goods. There is an indication that both sides will try to increase trade in agriculture as well. What is surprising is that the initiation of the bilateral trade talks was accompanied with rather unfriendly comments on India being the “tariff king”. Is the objective to demoralise India at the outset and drive the negotiations towards one-sided results with bluff and bluster? To prevent the talks from becoming lopsided, India must insist on some guardrails to protect its interests.

Ensuring reciprocal negotiations

First, the negotiations must lead not to one-sided liberalisation but to an exchange of reciprocal concessions. The concept of “reciprocal negotiations”, embodied in the World Trade Organization’s (WTO) agreement, is quite different from that of “reciprocal tariffs” that Trump and his team propound. The former implies that both sides must participate in the process and there must be an exchange of concessions, a give and take in reducing tariffs, which could very well begin and end at different levels. On the other hand, the latter seems to point to tariff equalisation among trading partners.

At the outset, India must dismiss the notion of reciprocal tariffs and emphasise the need for the negotiating process being reciprocal.

Adherence to MFN principle

Second, the liberalisation undertaken pursuant to the BTA must be generalised and applicable on a most-favoured nation (MFN) basis, as in mainstream WTO negotiations. Thus, the reduced tariffs in India will apply not only on products imported from the US but also on those imported from any WTO member. Likewise, the reduced US duties will apply not only to India but to products imported from any WTO member.

When multilateral trade negotiations take place, the results are multilateralised automatically and there is no problem in implementation. However, when only two countries negotiate, the free ride for third countries may create hesitancy among the participants in going forward. The participating countries may decide either to ignore the free ride benefits and go ahead with bilateral liberalisation or exclude the product from the liberalisation exercise. Both India and the US will face this problem.

Sticking to the rules

The US may ask for a preferential arrangement in conflict with the rules, as happened in the US-Japan Trade Agreement 2020, which the first Trump administration entered into on the pretence of an interim agreement as permitted under Article XXIV of the General Agreement on Tariffs and Trade, 1994. There was no customs union or free trade area on the horizon, and no interim agreement in sight, with a plan and schedule for such economic integration within a reasonable period, and yet the US and Japan cut a deal. For one reason or the other, everyone blinked and the US took home an interim deal with substantial and one-sided preferential benefits in agriculture. A repeat of such a deal, if attempted by the Trump administration, should be firmly resisted.

Foreseeing market access

A few agricultural products imported by India from the US have been so much in the news that one can visualise a core list that might figure in the BTA for tariff reduction: lentils, tree nuts (almonds, walnuts, pecan, and pistachios), apples, cranberries, and bourbon whisky. The US will no doubt make a strong effort for at least a tariff quota for milk products, but the sensitivities around the slaughterhouse residue being added to fodder given to cows in the US will make agreement on the liberalisation of dairy products a big challenge in India. For Indian agricultural exports, the sanitary and phytosanitary aspect has been a hurdle for mangoes and pomegranates. However, in past discussions, no clear sense has emerged on how progress could be made.

As for non-agricultural products, both sides will face the problem of a free ride for third countries arising from MFN-based liberalisation. Any initiative for an alternative deal of an exchange of preferential concessions between the US and India without a free trade agreement is likely to be met with serious retaliatory challenge by the European Union and perhaps other industrial nations, leading to a frustrating gridlock.

Non-tariff barriers and other issues

In the past few years, there have been rising complaints against India over non-tariff barriers, which are likely to be raised by the US during bilateral talks. India should welcome an honest discussion so that the problems are effectively addressed.

The bilateral talks will also provide an opportunity to resolve differences on two important issues. The first issue is the indefinite extension of the moratorium on imposing customs duty on electronic transmissions, sought by the US and opposed by India. The second issue is data localisation, on which the two sides have different viewpoints.

Overall outlook

The market access package for agriculture is advantage Trump. On market access in non-agricultural products, progress in bilateral negotiations will not be easy to achieve. There is potential for advances on some important non-market access issues. More than that, it is difficult to tell at this stage.

The writer is honorary professor, ICRIER.

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