Mains Practice Questions

Approach

• Start with giving some facts on India's trade with the US.
• Discuss the issues and challenges persisting in the trade relations of the two countries.
• Suggest a way forward.

Introduction

The USA is one of the few countries with which India has a trade surplus. In 2019-20, the bilateral trade between the USA and India stood at USD 88.75 billion. However, recently, the new US administration has indicated that it is no longer interested in securing a bilateral Free Trade Agreement (FTA) with India.

Body

Issues in the Trade Relationship

• Tariffs: Both the countries cite market barriers including both tariff and non-tariff barriers, as well as multiple practices and regulations that disadvantage foreign companies.
• Generalised System of Preferences (GSP) Programme: Effective from June 2019, the USA decided to withdraw duty-free benefits to Indian exporters under the GSP programme.
• Services: A key issue for India is the USA's temporary visa policies, which affect Indian nationals working in the United States.
  
  • India also continues to seek a “totalization agreement” to coordinate social security protection for workers who split their careers between the two countries.
• Agriculture: Sanitary and phytosanitary (SPS) barriers in India limit USA agricultural exports.
  
  • Each side also sees the other’s agricultural support programs as market-distorting.
• Intellectual Property (IP): The two sides differ on how to balance IP protection to incentivize innovation and support other policy goals, such as access to medicines.
  
  • India remains on the “Special 301” Priority Watch List for 2020, based on concerns owing to its treatment of patents, infringement rates, and protection of trade secrets.
• "Forced" Localization: The United States continues to press India on its “forced” localization practices.
  
  • Initiatives to grow India’s manufacturing base and support jobs include requirements for in-country data storage, domestic content (such as laws protecting India’s solar sector), and domestic testing in some sectors.
  • India’s new data localization requirements for electronic payment service suppliers such as MasterCard, Visa, etc.
• Investment: US concerns about investment barriers remain nevertheless, heightened by new Indian restrictions on how e-commerce platforms such as Amazon and Walmart owned Flipkart conduct business.
• Defense Trade: The United States urges more reforms in India’s defense offsets policy and higher Foreign Direct Investment (FDI) caps in its defense sector.

Way forward

• Switching to Multilateralism: Given that India is not party to any mega-trade deals, this would be an important part of a positive trade policy agenda.
  
  • Having walked out of RCEP, India needs to demonstrate to its potential FTA partners, including the EU and the UK, that it is a viable alternative to China in a post-Covid world.
• Economic Reforms: India’s trade policy framework must be supported by economic reforms that result in an open, competitive, and technologically innovative Indian economy.
• Improving Manufacturing: The share of manufacturing in theGDP needs to rise through efficient implementation of schemes such as the Make in India initiative.
  
  • Further, Implementation of India’s major schemes—the Smart City Project, Skill India Program, and Digital India—will require foreign direct investment and a comprehensive rebooting and rejuvenation of India’s manufacturing sector.
• Need For Innovation: If innovation needs to be promoted, perhaps India should have unveiled an innovation incentivization policy, as intellectual property rights are the flip side of the innovation coin.

Conclusion

There is a huge potential to boost bilateral trade between the countries especially on account of increasing anti-China sentiment in both the nations.

Thus, the negotiation should focus on the resolution of various non-tariff barriers and other market access improvements as early as possible.