Signs Of Thaw:

The Indo-US ties seem to be re­turn­ing to nor­malcy af­ter a se­ries of neg­a­tive de­vel­op­ments in the last few months.

India Business Journal - - CONTENTS - PALLAB BHATTACHARYA

The Indo-US ties seem to be re­turn­ing to nor­malcy af­ter a se­ries of neg­a­tive de­vel­op­ments in the last few months.

Af­ter a brief pe­riod of hic­cups, re­la­tions be­tween In­dia and the United States again ap­pear to be look­ing up through some give-and-take mea­sures. US Pres­i­dent Don­ald Trump has made it clear right from the word go that he will be more trans­ac­tional in deal­ing with other coun­tries, in­clud­ing his clos­est al­lies in Europe and Asia. This is also ev­i­dent in the case of In­dia also.

On July 29, the US el­e­vated the sta­tus of In­dia as a trad­ing part­ner to a level called Strate­gic Trade Autho­riza­tion-1 (STA-1), which Washington ac­cords to its Western al­lies for sup­ply­ing sen­si­tive tech­nol­ogy, which has ap­pli­ca­tion in a range of civil­ian and mil­i­tary ar­eas for prod­ucts that are oth­er­wise sub­ject to strin­gent ex­port con­trols. The US has ac­corded the STA-1 sta­tus to 36 coun­tries - all con­stituents of the US-led North At­lantic Treaty Or­ga­ni­za­tion (NATO) and In­dia is the third Asian coun­try af­ter Ja­pan and South Korea, both of which en­joy the Amer­i­can se­cu­rity um­brella for decades, to get the spe­cial trade sta­tus.

In­dia has so far had the US STA-2 sta­tus given to seven coun­tries, in­clud­ing Is­rael, South Africa and Tai­wan. The US ac­tion makes it eas­ier for In­dia to get ac­cess to lat­est de­fence tech­nolo­gies from the US by cut­ting down the num­ber of li­cences for the pur­pose. Un­der­stand­ably, In­dia has termed the US move as a log­i­cal cul­mi­na­tion to Washington's des­ig­na­tion of New Delhi as a ma­jor de­fence part­ner ac­corded at the fag-end of Bar­rack Obama as Pres­i­dent. Be­sides, it once again drives home In­dia's im­pec­ca­ble track record as a mem­ber of dif­fer­ent ex­port con­trol regimes re­lat­ing to global trade in sen­si­tive ma­te­rial and tech­nolo­gies.

New sta­tus

The Amer­i­can ac­tion con­sti­tutes an im­por­tant po­lit­i­cal sig­nal as In­dia tries to in­te­grate with the global com­merce in tech­nolo­gies which have dual use - mil­i­tary and civil­ian. Ex­perts note that the STA-1 is ex­pected to go some way in ad­dress­ing long-pend­ing con­cerns of In­dia as a re­li­able de­fence part­ner in­su­lated from sanc­tions. Sig­nif­i­cantly, the US move has come more than a month ahead of the cru­cial sep­a­rate di­a­logues with In­dia at the level of for­eign and de­fence min­is­ters in New Delhi in the first week of Septem­ber this year, for which US Sec­re­tary of State Mike Pom­peo and De­fense Sec­re­tary James Mat­tis are ex­pected.

More im­por­tantly, the US has a high com­mer­cial in­ter­est in giv­ing STA-1 sta­tus to In­dia. Es­ti­mates sug­gest that the US missed out on ex­port­ing high-tech­nol­ogy prod­ucts worth about $10 bil­lion to In­dia in the ab­sence of STA-1 in the last ten years. The STA-1 is go­ing to be a key com­po­nent of the Indo-US de­fence co­op­er­a­tion, which both the coun­tries are look­ing to scale up.

Ac­cord­ing to me­dia re­ports in In­dia, the two coun­tries are in the process of ini­ti­at­ing talks for In­dia's pur­chase of an air de­fence sys­tem to shield parts of the In­dian cap­i­tal city from en­emy mis­siles and air­craft. The plan for this sys­tem has been in con­sid­er­a­tion for a long time. In the last decade, In­dia has

bought or placed order for mil­i­tary hard­ware worth $15 bil­lion.

Ac­cord­ing to a re­port by Stockholm-based In­ter­na­tional Peace Re­search In­sti­tute in March this year, the US has emerged as the sec­ond­largest sup­plier of mil­i­tary hard­ware to In­dia af­ter Rus­sia. Amer­i­can arms ex­ports to In­dia jumped 557 per cent be­tween 2013 and 2017 over the arms ex­ports be­tween 2008 and 2012.

Warm­ing up

But In­dia also faces a chal­lenge af­ter get­ting the STA-1 rat­ing. Ob­servers sug­gest that by giv­ing the rat­ing, the US may be at­tempt­ing to en­snare In­dia into sign­ing the Com­mu­ni­ca­tions, Com­pat­i­bil­ity and Se­cu­rity Agree­ment (COMCASA), which, along with two other agree­ments, will fa­cil­i­tate the set­ting up of high-se­cu­rity Amer­i­can com­mu­ni­ca­tion gad­gets mounted on de­fence hard­ware pro­posed to be sold to In­dia. How­ever, New Delhi has its own con­cerns over al­low­ing the US ac­cess to mil­i­tary com­mu­ni­ca­tion sys­tem.

An­a­lysts also see the US giv­ing the STA-1 sta­tus to In­dia as a re­buff to China, which has blocked In­dia's en­try into the Nu­clear Sup­pli­ers' Group (NSG), the high ta­ble of the world civil nu­clear trade. This is one of the four im­por­tant in­ter­na­tional agree­ments for reg­u­lat­ing the busi­ness of high-tech tech­nol­ogy and goods for civil and mil­i­tary uses. In- dia is al­ready a mem­ber of the Mis­sile Tech­nol­ogy Con­trol Regime (MTCR), the Wassen­naar Ar­range­ment (WA) and the Aus­tralia Group.

In an­other im­por­tant de­vel­op­ment, the US has an­nounced a waiver for In­dia from sanc­tions against coun­tries im­port­ing weapon sys­tems from Rus­sia. In­dia and Rus­sia are al­ready in ne­go­ti­a­tions about a mis­sile de­fence sys­tem. On the trade front, the ties be­tween In­dia and the US are un­der the shadow of tar­iff war threat­ened by the Trump ad­min­is­tra­tion on im­port of steel and alu­minium. But if a re­cent me­dia re­port is any­thing to go by, the two coun­tries are mov­ing to­wards re­solv­ing the dif­fer­ences on the US con­cerns on prices of med­i­cal de­vices and in­for­ma­tion tech­nol­ogy (IT) prod­ucts.

Amer­i­can multi­na­tional com­pa­nies, like Ab­bot and Bos­ton Sci­en­tific, deal­ing in med­i­cal de­vices are un­happy with In­dia's cap­ping prices of prod­ucts, such as stents. The In­dian med­i­cal de­vices mar­ket is pegged at $5 bil­lion. Ac­cord­ing to a me­dia re­port, In­dia may now mull cap­ping trade mar­gins for some med­i­cal de­vices in place of price con­trols. In­dia is also likely to change its Com­pul­sory Reg­is­tra­tion Scheme for IT prod­ucts, which lays cer­tain stan­dards for the IT prod­ucts to meet the Amer­i­can in­sis­tence.

On the other hand, In­dia has de­ferred by 45 days its de­ci­sion to im­pose duty on 29 prod­ucts im­ported from the US, ap­par­ently to give ne­go­ti­a­tions a bet­ter chance to suc­ceed when talks are held in early Septem­ber. The tar­iffs were sup­posed to come into ef­fect last month to counter a US move to uni­lat­er­ally raise Cus­toms Duty on im­port of In­dian steel and alu­minium prod­ucts to the US.

In­dia had asked the US gov­ern­ment to ex­empt it from the 25 per cent steel tar­iff and 10 per cent alu­minium tar­iff im­posed by Mr Trump on grounds of na­tional se­cu­rity. But the US had re­jected In­dia's re­quest. On June 20, In­dia had no­ti­fied that it would hike tar­iffs on 29 US prod­ucts, in­clud­ing al­monds, ap­ples and phos­phoric acid, worth $10.6 bil­lion of im­ports in re­tal­i­a­tion to the steel and alu­minium tar­iff hikes by the US. In­dia had, how­ever, not im­posed the tar­iffs im­me­di­ately.

In­dia and the US will hold the much de­layed first "2+2" di­a­logue be­tween the for­eign and de­fence min­is­ters of the two coun­tries on Septem­ber 6 in New Delhi. The post­pone­ment of Cus­toms Duty hike on US im­ports is seen as a tac­ti­cal move by In­dia. It sets the stage for a mean­ing­ful di­a­logue in Septem­ber and also a pos­si­ble so­lu­tion.If things move in the right di­rec­tion, one might see a thaw re­turn­ing to In­dia-US ties af­ter a se­ries of neg­a­tive de­vel­op­ments in the last few months.

Modi & Trump: Look­ing ahead for good times

The STA-I sta­tus makes it eas­ier for In­dia to get ac­cess to lat­est de­fence tech­nolo­gies from the US

The US has emerged as the sec­ond-largest sup­plier of mil­i­tary hard­ware to In­dia af­ter Rus­sia.

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