AVERTING A TRADE WAR
While the 2+2 dialogue will focus intensely on defence and strategic affairs, irritants like India’s purchase of Iranian oil and serious disagreements on trade tariffs will also find a mention
The Trump administration has been using a mix of diplomatic, strategic and trade measures against its trade partners for better flow of goods and services to those markets, while reducing US imports. This carrotand-stick approach of the US has already seen a renewed trade pact being negotiated with Mexico. It is also redefining the US’s relations with countries like China, the EU and Canada. India cannot be an exception. The 2+2 dialogue, in spite of its intense focus on defence and strategic ties, cannot be completely devoid of trade interests.
Even if bilateral trade does not take centre stage, strategic and diplomatic issues that can impact India’s current account deficit, overall trade balance and energy security will have to be a part of it. “The most important thing will be the US’s stand on India’s $10 billion oil imports from Iran (a country facing US trade sanctions),” says Ajay Sahai, director general and CEO, Federation of Indian Export Organisations. If the US has to ignore India’s continued engagement with Iran, its third largest oil supplier, it can only happen through a strategic dialogue.
The second biggest irritant is the tariffs imposed on aluminum and steel and India’s decision to announce retaliatory tariffs. Since just 2 per cent of the US’s steel and aluminum imports are from India, it’s possible that Washington extends an exemption to New Delhi. India has postponed the imposition of a retaliatory tariff, creating a window for conciliatory talks.
India’s third demand is the continuance of zero duty exports of about 3,500 items, including textiles and engineering goods, under the Generalized System of Preferences (GSP), the oldest US trade preference scheme. The US’s decision to review India’s GSP beneficiary eligibility was based on complaints from the country’s dairy and medical device industries over alleged Indian trade barriers.
The US has its own complaints. It wants India to correct the trade imbalance. According to the US Census Bureau, Indian exports were worth $26.8 billion and imports worth $15.5 billion in the first six months of 2018. India argues its trade surplus with the US is narrowing ($22.9 billion in 2017 as against $24.4 billion in 2016) and may plummet further as India increases its oil and gas exports and begins defence purchases from the US.
With close to 200 US Food and Drug Administration-approved manufacturing facilities, India is the biggest source of low-cost, high-quality generic medicine supplies to the US. Reason why pharmaceuticals is one of the biggest components of Indian exports to that country. The US wants India to change its intellectual property right (IPR) laws to widen the scope of patentability to allow the smooth entry of patented products from US drug majors, with exclusive marketing rights. That worry is far from over. Though, the value of the product or the size of the market alone cannot explain many of the trade-related complaints the US has with India. One of the US’s recent complaints was the high tariff India had proposed on the iconic US bike Harley Davidson, though the company’s sales in India are minimal. Similarly, chicken legs may not be a high-value product, but the US and India are battling at the WTO’s dispute settlement forum on the US complaint that India is not allowing import of chicken legs. Same is the case with dairy products, where India says that importing products originating from animals fed non-vegetarian diets can hurt the country’s religious sentiments.
The CII has welcomed US Secretary of Defense James Mattis and Secretary of State Mike Pompeo’s support for India’s exemption from CAATSA (Countering America’s Adversaries Through Sanctions Act). “With this status, India benefits from Tier 1 Strategic Trade Authorization, enhancing the defence trade and technology partnership. This can open up cooperation under India’s strategic partnership programme for defence procurement,” says Chandrajit Banerjee, director general, CII.