India must step in to prevent trade conflicts
The USTR revoking zero-tariff privileges for Indian goods will create trade friction
India and the United States are squaring up for an exchange of blows on trade issues as space for a negotiated agreement is running out. The United States Trade Representative’s Office (USTR) has run out of patience over a two-year dispute on medical device price controls, not least because New Delhi suddenly walked away from a negotiated settlement. The USTR now wants zero-tariff privileges for Indian textiles and other imports, under the World Trade Organization’s (WTO) generalised system of preferences, to be revoked. The most obvious Indian retaliation would be to impose tariffs on US steel and aluminium imports, something it has delayed despite the unilateral imposition of similar tariffs on India.
The real danger would be for this tit-for-tat to trigger an escalatory series of actions. Of concern would be the formal dispute spreading to incorporate a whole set of new sources of trade friction such as data localisation norms or the rules governing e-commerce investment. Much of India’s problems arise from arbitrary decisions by domestic regulators, complicated by a political unwillingness to override these decisions.
The environment today is different for two reasons. One is that the Trump administration sees no contradiction in having friendly strategic relations and a confrontational trade policy with the same country. The US is also running two separate trade policies. Mr Trump’s revolves around trade deficits and temporary obsessions like Harley-davidson motorcycles. The USTR remains concerned about policy shifts that undermine US corporate interests. Two, India is struggling with a whole set of new norms regarding the digital economy that it has yet to settle. The Modi government had mooted the idea of putting all these issues into one basket and working on a Us-india trade pact. It is perhaps time to dust off this idea and begin a process designed to prevent potential trade conflicts, most of which are predictable.