Even as the timelines for the Indo-US trade deal draw near (an interim agreement is expected before July), sensitivities have appeared in the relationship, with disagreements on agricultural tariffs risking the 9 July deadline, after which 26% tariffs will be applied on Indian exports. This follows the stand-off at the WTO, where India has suggested countermeasures following the USA’s rebuttal of India’s formal notice. This episode is part of the long history of both countries not seeing eye to eye on issues of trade, especially at the WTO.
India was a proactive architect of the G33 back in 2003, which argued for ‘special products’ exemption and ‘special safeguard mechanisms’ to protect the interests of developing economies under the Agreement on Agriculture (AoA). This was perceived by the USA as an attempt to undermine US interests at the WTO. Similarly, while the USA has been promoting plurilateral deals, India has consistently argued that they undermine the multilateral ethos of the WTO. India did not sign the plurilateral Government Procurement Agreement (GPA) as public procurement is a critical tool for social development. For instance, India in the past leveraged its public procurement mechanism to boost the Make in India programme, which would not have been feasible under the GPA.
Agricultural products are a major category on which the present trade talks are stuck. Historically, it has been a sector in which both countries have often had differing positions. While both the USA and India give considerable domestic-level subsidies in agriculture under the different WTO-approved provisions, the USA argues that India’s MSP-based public procurement is market-distorting, especially given that India is a major exporter of rice. FCI procurement is an essential mechanism for food security and inflation control in a developing economy like India. No wonder, then, that India, China and other developing nations have always pushed back against attempts to curtail domestic support measures in agriculture.
Special and Differential Treatment (SDT) is another bone of contention between the two countries. SDT was designed to provide support to developing and least developed economies, including India. In 2019, the USA tried to revise the eligibility by suggesting withdrawal of SDT to countries that fulfil certain conditions, such as being part of the OECD (or in the process of becoming part of the OECD) or accounting for 0.5% of global trade. This proposal would have disqualified around 32 countries from SDT, including India. Fifty-two developing countries opposed the proposal, with India taking a principled position that SDT was a fundamental right granted to all developing countries at the onset of the WTO and was not a dynamic or flexible benefit, as was now being argued by the USA.
But perhaps the biggest complaint the USA has had with India is on digital trade. As both countries try to leverage their respective digital economies in their global trade portfolios, they have consistently taken conflicting positions. The USA perceives Indian programmes like Digital India, Aatmanirbhar Bharat and the India Stack-based Digital Public Infrastructure (DPI) framework to be protectionist in nature. Indian policies on data security, restrictions on cross-border data flows, and geospatial guidelines, etc., are perceived as impediments to ease of doing business for US service providers.
A particular issue in this regard is the Equalisation Levy, a tax that was dubbed the ‘Google Tax’ by the media as it was perceived to be directed at Google (or major American businesses). In this regard, India’s opposition to accepting the WTO Moratorium on Customs Duties on Electronic Transmissions is seen as a strong-handed position by the USA. This perception is misplaced, as India’s digital regulations are globally perceived to be more progressive than (say) the EU’s GDPR or DMA. It is all the more ironic given that the USA and India are two of the major global tech start-up hubs, with considerable US investment ingrained in the Indian start-up sector at various stages of funding.
The root of the differences, despite the overall political goodwill both countries share, stems from the inherent difference in perception about each other. India has always upheld the solidarity of developing economies at the WTO and does not break ranks, even as it is poised to emerge as the fourth-largest economy. India’s perception is rooted in the historical inequalities that still exist between a developed country like the USA and a developing country like India. India is clear on the fact that despite its recent advances, the per capita consumption levels in India (especially in energy, steel, and cement, to name a few) are still incomparable to those of a developed economy like the USA.
The agricultural sector in India is still underdeveloped and more vulnerable to price shocks than that of the USA. The prevalence of MSMEs in all sectors and the inherent vulnerabilities of this sector, especially post-pandemic, require stronger protectionist measures to safeguard the livelihoods of the marginalised.
The USA perceives India as taking somewhat of an opportunistic and obstructionist position that seeks to continue receiving the benefits reserved for developing economies, even though it is one of the largest economies. This perception (accentuated by the hyperbole of the present administration) is pegged to the fact that India’s current growth rate is one of the highest in the world, while that of the USA is faltering.
The USA perceives India’s recent advances—be it in electronics manufacturing or auto components—as developments that come at the expense of the US manufacturing base. In that sense, the USA perceives every recent gain of India as a commensurate loss for itself, which it seeks to offset through trade agreements.
A bilateral deal in this context between the two countries will not be just about resolving tariff lines. It will require reconciliation of conflicting perspectives that have more often than not seen both countries on opposite sides at the WTO. Any trade agreement is essentially a give-and-take that requires like-mindedness on both sides. The trade talks between India and the USA, despite all positive intentions, cannot be resolved unless the perceptions of inequality and mistrust are amicably addressed between the two nations.
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