Former India trade negotiator Abhijit Das: New Delhi must be careful not to sign-off on a lopsided deal with Washington

Summary

India is focusing on gains for labour-intensive sectors but concessions in agriculture can cause greater losses. The February framework's clauses on joint action against third parties also risk compromising India's sovereignty in policymaking. We must be careful not to sign-off on an asymmetric deal

The recent visit of the US secretary of state Marco Rubio to Mumbai has rekindled optimism about the India-US trade deal. US President Donald Trump has also weighed in, saying that the two countries are "pretty close" to a trade agreement, which will be a "different kind of deal." What could be the contents of the trade deal? And what could be its implications?

Over the past few months, on several occasions, high level government functionaries in the department of commerce have explicitly stated that the trade deal would be broadly along the lines of what was agreed by the two sides on 6 February this year. In addition, it could include a legal text giving India a tariff edge of 2-3 percentage points over its competitors, thereby making it what Trump noted would be a "different kind of deal."

Under the framework, the US was required to reduce reciprocal tariffs on India from 25% to 18%, while India had committed to reducing or eliminating tariffs on most US agricultural and industrial exports. With the US Supreme Court having ruled the reciprocal tariffs imposed by the US to be illegal, an important element to look out for in the final trade deal would be the level of tariffs that the US would impose on India's exports.

As India would bring down its tariffs on most US exports to zero, but India's exports to the US would likely face tariffs of anywhere between 12% and 20%, this would represent an obvious asymmetric outcome. Another asymmetric element in the framework is India's commitment to purchase over $500 billion worth of US energy, technology, agricultural, coal and other products over the next five years, without any commensurate obligation on the US to purchase Indian products.

Further, under the framework, India has specifically agreed to address long-standing barriers and non-tariff barriers to the trade in US medical devices, information and communications technology (ICT) products as well as food and agricultural products. There is no similar specific reciprocal commitment by the US -- yet another element skewed against India.

In addition, the framework requires India to "determine, with a view towards a positive outcome, within six months of entry into force of the Agreement whether US-developed or international standards, including testing requirements, are acceptable for the purposes of US exports entering the Indian market in identified sectors." There is no similar specific reciprocal commitment whereby the US would accept India-developed standards.

India's commitments would have far-reaching implications. With respect to US exports in some sectors, including agriculture products, the US certification would prevail over India's regulatory requirements. This could also provide a back-door that facilitates US exports of genetically-modified as well as dairy products.

The framework requires the two countries to negotiate on issues such as economic security alignment, intellectual property, digital trade, government procurement, among others. It is likely that the outcomes of these issues could be concluded not in the next few weeks, but a few months down the line.

With respect to economic security alignment, the agreements for reciprocal trade finalized by the US with certain countries include the following obligations: coordinated restrictions on third-country trade, taking action against third-country-controlled firms, export control alignment, among others.

Accepting some of these demands of the US would curtail India's sovereign decision-making on economic and foreign policy issues. As a result, instead of taking action for promoting its national interest, India would be compelled to tether its policy choices to the interests of the US.

If the trade deal with the US is likely to contain many clauses slanted against India's interests, why is New Delhi pushing for the agreement? The India-US trade deal is expected to involve trade-offs, with both parties extending concessions to each other.

India's negotiators appear to be concentrating mainly on the gains from the deal: boosting India's exports from labour-intensive sectors such as textiles and clothing, gems and jewellery and leather products to the US.

The export gains would be largely conditional on India enjoying a tariff advantage over its competitors. The sanctity of that advantage would, however, depend on how explicitly the trade deal states it and whether Trump, or for that matter whoever succeeds him as US president, respects it. If this is an unwritten arrangement -- which is possible as Washington wouldn't want other countries riled -- then India cannot remain sanguine about tariff certainty.

In conclusion, India's negotiators need to make an overall assessment of the likely benefits and adverse impacts of the trade deal with the US, based largely on the framework agreed upon in February, before finalizing it. Concessions by India in the area of agriculture are likely to push a far greater number of farmers out of employment in almonds, apples, cotton, orange juice, red sorghum and soybean oil than the gains in labour intensive industrial sectors.

Indian negotiators must fully grasp the perils from the outcomes of future negotiations on issues whose seeds are contained in the February framework. India must not compromise its long-term prospects in the digital sector, access to medicines and sovereignty in economic policymaking for tiding over the problem of exports in textiles and clothing and a few other sectors.

India, with its determination to become a developed country by 2047, can ill-afford an asymmetric trade deal with the US.

These are the author's personal views.

The author is an expert on international trade issues.