US FTA pending because of Washington; 2023 targeted for talks now: Officials

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Washington’s inability to prioritise the matter is responsible for the slow pace of talks and frequent breakdowns in negotiating positions in the India-US trade deal talks, officials said.

Talks on a free trade agreement (FTA) are now expected to progress rapidly in early 2023, the officials said, pointing out that the US was the only partner in the QUAD grouping which does not have FTAs with each of the other partners.

QUAD, or Quadrilateral Security Dialogue, is a strategic forum comprising Australia, India, Japan and the United States

"The United States is not talking, not us. The UK has been chasing them for a trade deal. It's far easier for the UK to sign a trade deal with them than us. But still, they haven't talked," a senior commerce department official said.

While both sides have committed to continue talks, egged on by the threat of Chinese dominance in manufacturing and trade flows, the COVID-19 crisis and different policy concerns of both nations have widened the gap in talks.

Officials told Moneycontrol that a number of sudden demands by the US, such as the procurement of American dairy products and a more liberal data privacy policy, have lengthened the process.​

"The US needs the approval of the US Congress (for the FTA). Currently, legislation like the infrastructure bill, climate change bill and semiconductor bill have shifted priority. I don't think they will talk in 2022, but they may start talking in 2023," the official cited above said.

He said the general support for the deal remains strong among businesses from both nations and the US-India Business Council, which is part of the US Chamber of Commerce, continues to bat heavily for the deal.

A step-by-step reduction of import duties on high-value US agricultural products, a trade margin policy for medical devices, and a promise to continue talks on reducing price restrictions on American technology goods remain India´s basic proposal for trade talks with the US, officials said.

This was also conditional on the US backing off from its tough stance on digital services taxes imposed by India.

Also read: Trade deficit scales record high of $31 billion in July, exports fall 12% over last month

The story till now 

India's relations with the US had become tense after the previous administration under President Donald Trump initiated a series of penal trade measures against India throughout its five years in power.

As a result, talks on the FTA had repeatedly faltered.

Just before the COVID pandemic struck in 2020, India had pushed for signing a limited trade deal with the US with a more comprehensive agreement down the path. This move didn’t yield results as US priorities changed due to the economic churn of the pandemic and a new administration under President Joe Biden coming in.

For its part, the US signalled that it was open to restoring trade benefits under its Generalised System of Preferences (GSP) to India, provided it got a “counterbalancing proposal.”

Reinstatement of GSP benefits has been a key demand of New Delhi, with India’s total benefits from GSP tariff exemptions amounting to $260 million in 2018, according to data from the Office of the US Trade Representative. This was only a small portion of India’s overall exports to the US in that period, which stood at $51.4 billion.

India has also flagged the pending India Social Security Totalisation Agreement to avoid double deductions from the income of employees working in each other's countries and to allow short-tenure Indian workers in the US to get back billions of dollars in social security deposits there.

New Delhi also raised its concerns on 24 Indian products being barred from US government supply due to them being on America´s Trafficking Victims Protection Act list, which designates them as "child labor sectors".

Export growth moderating 

Data released by the commerce and industry ministry on August 2 showed exports to the US in July fell for the first time in more than a year, albeit slightly. A slump in demand in key markets and a high base effect were attributed by the commerce department as the reasons behind the fall.

At a press briefing, commerce secretary BVR  Subrahmanyam said exports in July were "almost static" at $ 35.24 billion, compared to $ 35.51 billion in July, 2021.

Exports had risen by 16.8 percent in the previous month of June.

To tide over sudden drops in exports, the government has pushed for more bilateral trade deals. Case in point, it expects an additional $10 billion in exports to the United Arab Emirates and an additional $ 6 billion to Australia from the two recent FTAs signed earlier this year.