Postponed to after the US midterm elections, the US-India Trade Policy Forum (TPF) will resume this week in Washington. The Trade Policy Forum is designed to resolve trade and investment issues between India and the United States and consists of five focus groups: Agriculture, Investment, Innovation and Creativity (intellectual property rights), Services, and Tariff and Non-Tariff Barriers. Ahead of the TPF, South Asia Center experts provide their analyses and predictions for the forum:
Results in the Trade Policy Forum will be disappointing but predictable
Despite the best efforts of US trade negotiators to deliver meaningful results for US stakeholders on bilateral trade with India, they had limited leverage with their Indian counterparts and the results will make that crystal clear. There will be some glossing over of serious bilateral trade problems, positive language on the architecture of TPF discussions across goods and services, and repackaging of specific areas of the agenda, such as labor, environment, and good regulatory practices, as part of a new working group on “resilient trade.” But it will be difficult to avoid the conclusion that the current approach on bilateral trade is not working. These are the first and fifth largest economies in the world that have compelling national interests in solidifying and expanding their strategic partnership, yet the trade relationship is stuck with prospects for improvements dim.
Two possibilities for 2023 could substantially alter the dynamics and put the trade relationship on a better, healthier course for the future. The first would be reauthorization of the US Generalized System of Preferences (GSP) program by Congress so that the two sides could come back to the table in the TPF with enticements to offer for concluding a wide-ranging trade agreement. If the United States could offer the reinstatement of India’s GSP benefits, the prospects are strong that the two sides could reach an agreement on a series of issues, covering agriculture, health-sector products, digital services, and new trade issues (e.g., environmental sustainability and more equitable distribution of the benefits of trade).
The second would be a reversal of the Biden administration’s allergy to negotiating free trade agreements (FTAs), which has handicapped the United States in competing in global markets as their trading partners negotiate preferential trade terms among themselves (India concluded an FTA with the United Arab Emirates (UAE) and an interim FTA with Australia in 2022 and is actively negotiating with the United Kingdom, European Union, and Canada). The playing field has become less level for US export interests as a result, and a more captive US domestic market is neither realistic nor more beneficial. While it is unlikely that India would be at the top of the list for early negotiation of an FTA if the Biden administration changes course (the United Kingdom and Kenya are more likely candidates), even the start of an exploratory process for a US-India FTA would kick-start the expansion of the trade relationship. The two governments would experience new, exciting dynamics in their bilateral engagement, more attention from stakeholders on both sides, and enhanced leverage to fix problems and venture into new frontiers on trade.
If neither of these possibilities emerge over the next year, it is likely that the TPF will continue to fall short of expectations. Both governments should consider the consequences of a trade relationship that has been going nowhere for too long.
The world’s two largest democracies have huge untapped potential for expanding trade ties, but they need a roadmap
If India and the United States have to reach the laudable goal of five hundred to six hundred billion dollars by 2030, the upcoming US-India Trade Forum must lay out a clear roadmap to achieve it. The world’s two largest democracies have huge untapped potential for expanding trade ties in goods and services—especially in wellness and pharma, agriculture, information technology, digital services, and green technologies and energy. I hope that some concrete outcomes are made possible during this Forum that benefit both countries.
An opportunity to reignite US-India trade talks
India-US trade talks have not gained as much traction in the Biden Administration as during President Donald J. Trump’s tenure when the two sides were close to a mini-trade deal. The restart of the Trade Policy Form provides an opportunity to change that. In the past two years, the Indian government has shown significant interest in forging bilateral trade deals with its key trading partners. This includes a Comprehensive Economic Partnership Agreement between India and the UAE and a trade agreement with Australia. Talks on a proposed India-UK FTA have also moved forward significantly.
A trade deal with Canada is also in the pipeline and likely to be signed in 2023. India would be keen to relook at its trade relationship with the United States as well—especially if Washington reconsiders the providence of GSP benefits to India. India has also signaled to soften its stance on digital trade between the two countries by removing hard data localization provisions in the latest draft of the Digital Data Protection Bill released in late 2022. This is likely to sit well with the US side. India is entering a critical year with general elections scheduled for early 2024 and holding the presidency of the G-20 forum this year. A favorable movement in the trade relationship between the two countries may also benefit Prime Minister Narendra Modi politically.
Progress on iCET is a win-win for India and the United States
The November 2021 TPF meeting in Delhi made significant expansion on commitments and collaboration between India and the United States. For example, healthcare was identified as a priority for resilient supply chains, the Initiative on Critical & Emerging Technologies (iCET) such as semiconductors, artificial intelligence and 5G were identified as priority sectors to work on, and mobilizing finance and scaling up clean technology initiatives were moved up in the priority list. If the upcoming TPF this week can inch forward on one of the above, it should be the iCET with a focus on semiconductors.
Both governments and industries align on the need and the potential. Both sides must also be mutually complimentary. Currently, India does not contribute to semiconductor production, but it has managed to be make some space in the all-important semiconductor design industry. India holds 20 percent of the world’s semiconductor design industry. Incentivized by the CHIPS and Science Act—when US semiconductor manufacturing companies are looking at the “China plus one” strategy—India might look like an attractive option. Much of the Indian private sector is venturing out on semiconductor research and design and manufacturing themselves. This is a space to watch as iCET becomes part of the TPF dialogue.
The Digital Data Protection Bill opens the door for increased US-India digital cooperation
This year’s Trade Policy Forum comes with relatively low expectations as both countries continue to define and recalibrate their approaches to trade and concentrate on their domestic political agendas. With past elements of a mini-trade deal seemingly stalled, the pathway to advance progress on a host of trade irritants remains unclear. However, there are some bright spots to consider: India’s recent draft Digital Data Protection Bill has walked back its hardline stance on data localization and raised the possibility of allowing cross-border data flows into countries designated as trusted partners. While the bill has yet to become finalized into law, it opens the possibility of a more substantive conversation on digital trade between the United States and India and potentially defuses tensions on a longstanding irritant in the relationship.
It also begs the question of whether India would be willing to sign on to a future digital economy agreement with the United States that could incorporate the eventual digital components of the Indo-Pacific Economic Framework (IPEF). India had avoided participating in the trade pillar of IPEF, citing concerns over potential commitments related to cross-border data flow and labor and environment standards. And, while the Indian position on IPEF is unlikely to change, Washington and Delhi would be wise to use the TPF to discuss areas of alignment on inclusive digital trade as well as potential digital cooperation during India’s G-20 presidency.
Progress is likely to be incremental but should be appreciated nonetheless
The US-India trade relationship has grown steadily over the past two decades despite a list of mutual concerns that has only grown longer even as the figures have grown larger. Trade has grown substantially—more than tenfold since 1999. Indicators suggest that the early post-pandemic era may be no exception, with record-setting foreign direct investment signaling continued US investment in India. But there is nothing inevitable about the long-term trajectory of US-India trade. Last year, in a positive sign of India’s willingness to strengthen bilateral trade relationships, India inked trade agreements with the UAE and Australia and renewed talks with others. But these were not the sort of high-standards deals that will ensure long-term trade growth. In the absence of such a comprehensive deal between the United States and India, active engagement, patience, and an appreciation of incremental wins will be needed on both sides to maintain the current positive trend line.
This week’s meeting of the relaunched US-India Trade Policy Forum is a welcome opportunity to ensure that the obstacles to two-way trade that hampered past TPF meetings are dealt with constructively. As with last year’s delicious deal on mangoes and cherries, progress in each of the focus areas is likely to be incremental. This is especially so until Washington has the ability to offer GSP benefits to India as an incentive. But there are also broader policy opportunities that neither side should lose sight of, particularly on digital trade and services. Ensuring commitments to cross-border data flow to maximize the growth of both countries’ digital economies will have a far bigger impact on long-term trade growth than tit-for-tat tariff reductions. Despite a long list of irritants, there is much to celebrate. As every investor knows, however, past performance is not always indicative of future results.
The US-India Trade Policy Forum is likely to be short on tangible outcomes
Expectations are conspicuously modest for the TPF with stakeholders anticipating a summit short on tangible outcomes. The sides may be meeting primarily out of recognition of the importance of high-level trade dialogue between the two responsible cabinet officials.
The United States and India habitually enter trade discussions from different vantage points that reflect starkly different economic circumstances, traditions, and systems. At present and for the foreseeable future, neither country is keen to make concessions on tariff and non-tariff barriers.
With far lower average tariff rates and fewer non-tariff barriers, the United States often starts this conversation from a position of less positive leverage. Washington’s stockpile of carrots has shrunk even further given the expiry of the congressional statute authorizing preferential tariff treatment to qualifying developing countries. Current President Joseph R. Biden’s predecessor had revoked India’s status under the GSP program, and so US trade negotiators could theoretically use the prospect of reinstatement to secure Indian compromises. However, Congress was unable to reauthorize GSP benefits for India in the ”lame duck” session last fall.
Those searching for a silver-lining can hope the ministerial will inject new momentum into bilateral trade discussions for when the GSP is back in play. Ambassador and US Trade Representative Katherine Tai and Indian Minister of Commerce and Industry Piyush Goyal are thought to enjoy a good rapport. A positive and constructive session would be welcome in advance of India hosting the next round of Indo-Pacific Economic Framework negotiations on February 8-11. Those discussions will center on supply chains, clean economy, and fair economy, but not market access. India opted not to join IPEF’s trade pillar last September but signed-up for the other trade-adjacent topics.
The South Asia Center serves as the Atlantic Council’s focal point for work on the region as well as relations between these countries, neighboring regions, Europe, and the United States.
SouthAsiaSource Dec 5, 2022
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