The US cannot be accused of being coy in wooing India to start negotiations for a trade agreement. Recent media reports quoting Eric Garcetti, the US Ambassador to India, suggestthat the US government is keen to open negotiations for a preferential trade agreement (PTA) with India. A few years earlier, Garcetti’s predecessor, Kenneth Juster was equally optimistic when he is reported to have said “I’d love the vision of a US-India Free Trade Agreement”.
How should India respond to the recent US overture?
At the outset, it is important to note four key points. First, it cannot be a coincidence that the statement of Ambassador Garcetti on the PTA comes just a few days prior to the next government taking office in New Delhi. In order to make a mark, the government is likely to be in a hurry to take new initiatives in the first few months of its tenure. It may, thus, be open
to initiating PTA negotiations with the US. The US could not have chosen a better time for making its move on the PTA.
Second, the scope of a PTA remains uncertain. Unlike an FTA, which requires the partner countries to remove customs duties on substantially all merchandise trade between them, the scope of products covered for tariff reduction or elimination can be narrower under a PTA.
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Further, a PTA must include a roadmap for progressing to an FTA. In addition, given the deep interest of the US in many non trade issues, it would be naïve to assume that it would agree to confine the negotiations to merchandise trade and exclude many contentious issues from the ambit of the negotiations.
Third, the US is likely to link its demands in the trade negotiations with its support for India on geo-strategic issues. India would just not be in a position to resist even the most unreasonable of the demands from the US. Consequently, it is apprehended that the outcome of the PTA negotiations would be slanted almost completely in the favour of the US and to
the disadvantage of India.
Fourth, many defence and foreign policy experts have lamented the fact that while India and the US are progressively coming closer on geo-political issues, the trade front is marked with sharp differences between them. They are likely to advocate with considerable enthusiasm that India should grab the opportunity and quickly negotiate a PTA with the US. The government must not get swayed by these experts. Instead, it must undertake a realistic assessment of the likely implications of a PTA with the US.
What should such an assessment include?
First, India must factor in the reality that as the average tariffs in the US is 3.4 per cent, its exports are unlikely get any significant boost, even if the US were to reduce its existing tariffs to zero on products of India’s interest. While the PTA might offer opportunities for expanding India’s exports to the US in sectors such as apparels, India is likely to face stiff competition from Vietnam. As part of the bargain, India must be prepared to open its markets for some agriculture products of deep interest to the US, including wheat and soyabean. How this would affect the livelihood of millions of India’s farmers must be a part India’s calculus.
Second, assuming that services trade can be included in a PTA type architecture, India must recognise that the US is extremely unlikely to agree to India’s demands for more access for its professionals under mode 4 of services.
Third, if the PTA negotiations go beyond merchandise trade and include IPR issues, India should be prepared for onerous demands from the US, which would require crucial changes in India’s patent and other IPR laws. In particular, aligning of Section 3(d) of India’s Patent Act in accordance with the wishes of the US would substantially erode the domestic generic
pharmaceutical industry and burden the public with inflated medical costs.
Fourth, negotiating provisions on environment, labour and gender would have many deleterious impacts on the Indian economy, including the following: raising the domestic cost of manufacturing; curtailing the policy options for spurring domestic production of goods required for de-carbonisation; and providing legitimacy to the US to block India’s exports on
grounds of sustainability.
Even if the provisions on these issues might not be legally enforceable, it would be a blunder to treat them as being benign. In any case, the US can use its considerable economic and political clout to compel India to comply with many of the
sustainability provisions.
Fifth, the Indian government must not fall for the myth spun by many in the past that a deep trade agreement with the US would enhance India’s access to high technology. Such claims go against the consistent stand of the US that it cannot direct its firms to share high technology as these are governed by patents.
In conclusion, how should India respond, if a formal offer is made by the US for initiating a PTA negotiation? India must not respond in a hurry. It should seek a clarity from the US on the scope of the PTA and seek to limit it to merchandise trade. India must make an overall assessment of what it might gain from the PTA and what would be its immediate as well as
long-term losses, before agreeing to initiate the PTA negotiations with an expansive agenda that includes issues beyond merchandise trade. For securing perceived strategic gains, India must not sacrifice its long-term trade and economic interests through the PTA.
(Das is an expert on WTO and international trade. Views are personal).
From: financialexpress
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