How trade could transform US-Indian relations

President Joe Biden meets Indian Prime Minister Narendra Modi at the White House on September 24, 2021. Photo by Evelyn Hockstein / Reuters.

The strategic relationship between the United States and India is one of the most important of the 21st century, but the failure of both sides to cultivate their commercial ties is holding it back.

When US President Joe Biden and Indian Prime Minister Narendra Modi first met in Washington last month under Biden’s presidency, their trade talks were limited and were only briefly mentioned in a joint statement. This superficial treatment suggests that trade has taken a back seat. Instead, it should be an inflection point for developing the US-India trade relationship, ideally to ultimately match the scale and importance of their strategic relationship. Their collaboration in the Quad Security Dialogue (with Australia and Japan) reflects common interests in combating China’s burgeoning regional hegemony and realizing the vision of a free and open Indo-Pacific.

Skeptics who think it naïve to prioritize and strengthen business ties have compelling reasons. Serious efforts to do so in the past have proven unsuccessful (except in some delicious cases), as every country has a shaky history with Free Trade Agreements (FTAs): India has pulled out of the Economic Partnership. global regional and the United States abandoned the Trans-Pacific Partnership. The domestic political environment in both countries is also hostile to new trade deals, and some might argue that neither the United States nor India has shown a readiness to face the political challenges and the vocal opposition that result from related negotiations.

In the absence of substantial trade agreements, the trade relationship between the United States and India – if measured by contractual obligations – is currently governed solely by the two countries’ membership of the World Trade Organization. (WTO). This is unfortunate because they have historically been seen as unofficial leaders of conflicting economic blocs (developed and developing countries), even though WTO alliances are more complex and variable than that. The WTO continues to fail to deliver meaningful results and pursue reforms, and the United States and India generally disagree on specific issues, from fisheries subsidies to approaches to reduce market distortions. in agricultural trade.

It would be unrealistic to hope that the United States and India could suddenly collaborate multilaterally on trade, making the bilateral trade relationship even more essential to resolve specific trade issues and generate productive dialogue in the future. Yes, the value of US-India bilateral trade and cross-border investment continues to grow, but this part of the US-India relationship remains unstable. It is threatened by a series of risks, including regulatory trends that restrict economic integration and the threat of economic sanctions on India’s defense trade with Russia. To move towards stability (and ideally more), Washington and New Delhi will need to articulate a common vision for a deeper, broader and more integrated economic relationship. The arguments for a broader view of trade are becoming more and more convincing, especially as the trade relationship has stagnated even as the strategic relationship has taken a leap forward.

While an FTA is unlikely in the short term, trade officials should at least start by laying the groundwork for an FTA. Piyush Goyal, India’s Minister of Trade and Industry, has previously urged the United States to establish some form of trade deal, and her meeting with US Trade Representative Katherine Tai at the US-India Trade Policy Forum more later this year could be a golden opportunity to pave the way for stronger trade and investment ties. Here’s what that vision might look like:

  1. Prepare the terrain. First, the United States and India should establish conditions before either party begins to take action to implement their vision. This means coordinating strategic and business goals more effectively going forward, leveraging the strategic relationship to resolve specific business irritants, and treating strategic and business interests as existing in overlapping areas.
  2. Tackle the priorities … The United States and India must urgently engage on critical emerging issues affecting trade. These include digital commerce (with a focus on data localization and e-commerce), climate change (with a focus on promoting green markets and avoiding future conflicts over policy measures. carbon border adjustment) and labor (with an emphasis on worker-centered trade policies). The latter is a priority for both countries, but the United States can push for commitments on specific labor rights, which India – like many other developing countries – can dismiss as arbitrarily confusing the trade with labor standards.
  3. … And the remaining issues. The two countries are expected to accumulate solid results on a range of outstanding issues such as market access restrictions, including tariffs and non-tariff barriers; regulatory alignment, in particular to respond to India’s growing desire to develop its own standards and testing requirements that could restrict both inbound and outbound trade; limits on trade in services, in particular restrictions on foreign investment and non-transparent or redundant licensing requirements; and intellectual property rights and other innovation policies in sectors of mutual interest, such as pharmaceuticals.
  4. Think long term. Finally, as Goyal suggested, Washington and New Delhi should develop a long-term vision for trade, including a roadmap towards possible FTA negotiations between the United States and India. Until that happens, each party will likely move further apart commercially, even as they cultivate closer ties with other business partners. Presenting a lucid and forward-looking vision will justify the allocation of the necessary resources to pursue it and possibly achieve it.

There will be risks. In both countries, serious efforts to advance trade relations will face challenges in the form of protectionist sentiments and policies. Stories that characterize certain economic actors, such as Americans investing in India and vice versa, as insidious and of market, social or political dominance can delay any progress. This has been particularly evident in the digital economy, even as private sector investment between India and the United States promises higher growth rates and global competitiveness for both.

Yet despite the risks, it would be worthwhile to establish a grand vision of the trade relationship between the United States and India. Biden and Modi are expected to play an active role in the deeper integration of their economies. Failure to do so means that trade and investment relations will falter, which is not in the strategic interest of either country.

Mark Linscott is Non-Resident Senior Research Fellow at the South Asian Center of the Atlantic Council and former Deputy United States Trade Representative for South and Central Asian Affairs, and WTO and Multilateral Affairs .

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