New Delhi: India and the US could not cement their much-anticipated trade deal during PM Narendra Modi’s week-long visit last month, but hectic negotiations continue between the two sides to thrash out an agreement.
The deal is likely to be a mixed bag of small concessions meant to iron out some of the trade irritants for now, with both Washington and New Delhi ceding ground on some demands, official sources and experts told ThePrint.
The deal, which is likely in two weeks, may earn India some relief from restrictions on spouses of H-1B visa-holders, but only “partially restore trade benefits” withdrawn by the US this June, when it struck India off the Generalised System of Preferences (GSP) framework for developing nations, diplomatic sources said.
The US, meanwhile, is unlikely to succeed in convincing India to step back on the 20 per cent tariff it imposed on information and communication technology (ICT) imports.
Trade relations between India and the US have been strained of late, especially under President Donald Trump, who came to office on the promise of boosting local industry and reducing the country’s dependence on imports, and has imposed a series of tariffs to “balance international trade”.
Trump and Modi were expected to announce the long-awaited trade deal during the prime minister’s visit, but a lack of consensus on key issues is believed to have delayed the announcement.
Negotiations, however, continue between Commerce Minister Piyush Goyal and his US counterpart Robert Lighthizer. External Affairs Minister S. Jaishankar is also holding talks with stakeholders in the US.
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A ‘bargaining chip’
Before Prime Minister Modi left for the US on 21 September, both sides had readied a “limited” trade deal. Under this, the US was getting greater access to Indian markets for its agricultural goods and dairy products.
Additionally, India had also agreed to remove high-end American medical devices, particularly stents and knee implants, from price control measures, or trade margin rationalisation (TMR).
Negotiations between Goyal and US Trade Representative (USTR) Lighthizer seemed to be succeeding and finalisation looked imminent by 26 September, four days after Modi and Trump put up a grand show of bonhomie at the Howdy, Modi! event.
The idea was to announce the deal in the presence of Prime Minister Modi and US President Trump. But the talks could not be concluded.
“The fact that the two sides could not conclude a deal in New York when Prime Minister Modi met with the President speaks volumes,” said Mark Linscott, former assistant USTR for South and Central Asian Affairs.
“That said, it seems that Lighthizer and Goyal have established a strong rapport and continue to work hard to reach a deal in the next week or two,” he added.
One of the main reasons why the deal tripped at the last minute was the US’ refusal to reinstate GSP benefits, or duty-free access, to Indian exports, sources told ThePrint.
The GSP, a trade programme that the US grants to developing countries, allowed Indian exports worth $6.5 billion to enter the American markets on a preferential basis. It was withdrawn earlier this year to pressure India into a “trade deal”.
For the US, one of the sources said, reinstating the GSP has become a sort of “bargaining chip”.
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No breakthrough in ICT tariffs, data localisation
Yet another reason why the deal could not be worked out is because India refused to budge on the 20 per cent tariffs it imposed on ICT products, especially smartphones, in 2014.
Apart from this, the US is also believed to have sought easing of regulations on India’s data localisation and e-commerce policies. This meant involving the Ministry of Electronics and Information Technology (MeitY) and it was not possible to agree to the deal in the US, the sources added, as no representative of the ministry was part of the Indian delegation.
Team Modi on this US trip included two ministers, External Affairs Minister S. Jaishankar and Goyal.
The US, it is learnt, also wanted some of the issues around the FDI policy in e-commerce to be also relaxed.
While there can be some positive announcement on data localisation and e-commerce, India is believed to have made it clear it will not be able to relent on ICT products.
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So what’s next for US-India trade?
A deal, albeit small, is expected to be unveiled in the next couple of weeks after all stakeholders are taken into account, as some of the demands made by the US require a consensus from several ministries.
While Goyal and Lighthizer are in constant touch with each other over the phone, Jaishankar has also been in talks with stakeholders in Washington. The foreign minister met Secretary of State Mike Pompeo after Modi’s return to India.
US Commerce Secretary Wilbur Ross, who is currently visiting India, has also met Goyal and other officials.
According to sources, the Trump administration may agree to a “partial” reinstatement of the GSP, which will only apply to products most needed by the US industry.
The US may also allow easy entry of Indian grapes and pomegranates into the American market.
But the high duties imposed on shipments of steel and aluminium, including India’s, in March 2018 may not be removed.
“India has been increasing tariffs slowly and steadily for the last couple of years, which inevitably, has led to shrinking of the Indian market for US goods,” said Richard Rossow, Wadhwani Chair in US-India policy studies at Washington DC-based Centre for Strategic & International Studies.
“And this is not just in one sector, but a number of sectors. So, a small trade deal is necessary. If not signed during the visit, it, at least, gave some direction. I do not think GSP will come back, but a partial restoration can be looked at.”
What does India stand to gain?
In terms of other concessions that India will be able to secure will be relief from H-1B restrictions, particularly those on work permits for visa-holders’ spouses.
It may also not conduct Special 301 investigations on India, which are an annual review “of the global state of intellectual property rights (IPR) protection and enforcement” that is meant to identify barriers to US trade.
Additionally, according to Rossow, the US may soon go for another round of 232 tariffs on automobiles but India may be given an exemption.
“This (the deal) is a critical first step that could provide a platform for building later successes, from digital trade to intellectual property rights to regulatory alignment in important sectors,” said Linscott, who is now a senior fellow at the Washington-based Atlantic Council.
“If they can’t succeed now, the trade relationship may continue to be on a rocky road ahead.”
Other issues remain too
India and the US have also been in discussions to conclude a ‘Totalization Agreement’ since 2007, securing which will allow temporary Indian workers to bring back the contributions they make towards the US Social Security system.
In the absence of the agreement, Indian professionals are not able to bring back the money they pay as part of the tax, an amount that currently stands at around $2-$3 billion.
However, the Modi government is yet to take it up with the US strongly.
“What we are going to have now is an understanding and not really a deal,” said Pradeep Mehta, secretary general at CUTS International, a trade advocacy body.
“Under this, both sides will iron out the trade friction. Hence, India should also discuss it with the US. Otherwise, two-way trade is increasing. We need American markets.”
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