Trade Talk | What is ailing India-US trade relations

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Biswajit Dhar

Economic relations between the two largest democracies have never been without its difficult moments but in the past few years, contentious issues between the two countries have dominated the bilateral space more often. If the pronouncements of the US Administration in recent months, and those of Commerce Secretary, Wilber Ross, are any indication, even the most optimistic commentators would find it difficult to argue that these differences can be resolved post haste. In fact, President Donald Trump’s present mood does not instil any confidence that the already existing list of contentious issues will not become even longer.

The India-US differences in economic relations hinge on two issues, namely, the trade surplus that India enjoys vis-à-vis its second largest trade partner, and the standards of protection and enforcement of intellectual property laws in India. In other words, the US’ conflicts with India is strangely similar to those it is embroiled with China.

It is not difficult to understand the concerns of the US as it tries to build trade relations with India. The US is the only major economic partner with which India has maintained surplus on the merchandise trade account consistently over a long time. Since the beginning of the millennium, the US has also been a major market for India’s information technology and enabled-services, which have contributed to moving the bilateral trade balance even more in India’s favour. Further, India has been importing relatively less from the US in recent years. Immediately before the economic downturn in the previous decade, the US’ share in India’s total imports was 8.5 percent, but a decade later in 2017-18, this share was down to 5.7 percent. During the same period, China increased its share in India’s imports from less than 11 percent to well over 16 percent. These numbers are symptomatic of the decisive shift in the direction of India’s imports since the turn of the millennium from Western countries towards Asia.

The main reason for these trends is falling price competitiveness of the US’ exports of manufacturing goods, vis-à-vis Asia. Since 2008-09, successive US administrations have been focusing on reversing this trend through a series of measures to revive the country’s manufacturing sector, but these measures have not yet borne fruit. The Trump administration has embarked on a radically different pathway to achieve the same goal. The administration has decided to prevent China from expanding its footprint in global markets, often at the expense of the US. It is also well aware that stopping China and reviving American manufacturing can both be realised only over the next several years, if at all. Therefore, its immediate goals are to target major markets, including India, that have high tariffs on a number of products of its interest, such as Harley Davidson, and, perhaps more importantly, on agricultural products, and to force these economies to yield to American pressure.

Over the past decade, the US has been able to persuade India to open its markets for apples and almonds, both of which have a fair presence in Indian markets now. But, if the US were to push India further on agriculture, the likely products could be major cereals, where India has considerable sensitivities for a number of reasons. Until now, the US has been putting indirect pressure on India in these areas by raising the issue of subsidies granted by India in the WTO. The US’ arguments are that India’s subsidies on wheat and rice are well above the limits permitted by the WTO’s Agreement on Agriculture. An exercise undertaken by this author shows that the US’ challenges on India’s wheat/rice subsidies are ill-founded. In fact, the US appears to have challenged India to deflect criticism on its own farm subsidies’ programme, which has escalated total subsidies from about $61 billion in 1995 (when the WTO was formed) to over $135 billion in 2016. It is also important to point out that while the US provides farm subsidies to capture global markets, India’s subsidies are targeted at small and marginal farmers, keeping in view the imperatives of food security and livelihoods. These are vital considerations for rule-making under the WTO.

India’s generic pharmaceutical industry has also been under the US administration’s scrutiny for more than three decades. The enactment of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and the strengthening of patent law was a major setback for the producers of generic medicines, but the Government of India was able to develop a TRIPS-consistent patent law that provided opportunities to these firms to expand their operations. Despite the fact that India’s patent law meets the standards set by the TRIPS Agreement, the US has been imposing bilateral pressures to discourage generic firms.

Providing a predictable set of rules for businesses to engage in cross-border trade was one of the major objectives of the multilateral trading system. An equally important objective was to protect countries having smaller economic clout against unilateral actions by the economically powerful countries. Trade relations between India and the US have increasingly become a case study of how the US has consistently used unilateral actions to force changes in India’s framework of policies and laws. India has resisted the unilateral pressures thus far, how well it can sustain them in the months ahead will be of considerable interest.

 Biswajit Dhar is a Professor at Jawaharlal Nehru University. Views are personal.