Talks for having the much-touted Bilateral Trade Agreement (BTA) between India and the United States have come to an impasse even as both sides need to activate diplomatic backchannel talks in order to break the current chill that has set in the robust bilateral relationship between New Delhi and Washington, according to Biswajit Dhar, a renowned international trade policy expert and a former advisor to the Ministry of Commerce and Industry.
“I think we have reached a stage of impulse. And I don’t see how this impasse can really be broken. And, because both sides have extremely strong entrenched positions, they are not willing to move an inch. So I don’t think the trade negotiations can go any further, despite the fact that we are hearing that on the 25th (of August), there is a US team which is going to be visiting here,” Dhar, a former Professor of JNU, told StratNews Global.
On 7 August, India was slapped with 25 percent tariffs on its exports to the US. This was followed by an additional tranche of 25 percent duties, which will come into effect from 27 August. Therefore, Indian exports of gems and jewellery, textiles, leather goods and others will face a total of 50 percent duties when they enter the US market, making the products expensive.
This happened at a time when India and the US were nearing the finishing line in signing a free trade agreement in some of the limited sectors, which would have then been followed up by a mega pact.
Apart from the 50 percent tariffs on Indian goods, the US has also imposed a 25 percent penalty specifically linked to India’s imports of Russian oil.
India has termed these tariffs “unfair, unjustified, and unreasonable” but maintains that it will continue diplomatic engagement. The Ministry of Commerce is leading discussions from India’s side and while a US trade team’s arrival is uncertain, the possibility of future talks isn’t entirely dismissed.
Last week, President Trump said trade negotiations with India won’t resume until the issue of recently imposed tariffs is resolved.
According to official sources, some of main sticking points why the BTA talks hit a roadblock was US’ insistence on greater market access in the agriculture and dairy sectors, which is a politically sensitive issue for New Delhi although India has opened up a lot of crucially key segments for the US exporters.
“India has never put agriculture and dairy, these two sectors, on the negotiating table in any of the agreements that we have negotiated so far,” said Dhar, adding that the reason being Indian agriculture has a very large number of small farmers, small and marginal farmers, who are “very poor farmers.”
He added that in its various submissions to the World Trade Organisation (WTO), India has maintained that the country has 99.4 percent farmers that are in a low income category.
“So they’re very poor farmers. Now, the apprehension here is that if the market is opened up to foreign competition and agri-businesses of the US, then the small farmers will be unable to compete with them. There will be loss of livelihoods and India’s food security. India has been maintaining its policy of self-sufficiency in food grains since the mid 1960s. And, we don’t want to move away from that position. So for the government of India, putting agriculture on the negotiating table implies that there is going to be political and economic instability,” he highlighted.
He added, “With the recent history of farmers on the warpath, the government was extremely cautious in not doing this with the US. So, under no circumstances they would have agreed to put agriculture on the negotiating table.”
‘Competitiveness Is Key’
According to Dhar, who was Head of the Centre for WTO Studies at the Indian Institute of Foreign Trade (IIFT), the current trade standoff with the United States is an opportune moment for the Modi government to take some bold moves in terms of policy measures to increase competitiveness of Indian exports across all sectors.
“The current impasse, the kind of a logjam that we are now facing, is really a defining moment for the government. It really should shake us up into thinking what needs to be done at home so that we can overcome the vulnerabilities,” he said.
Dhar also stressed that due to this inherent lack of competitiveness, India has not been able to fully take advantage of the existing FTAs with South Korea, Japan and the Association of Southeast Asian Nations (ASEAN).
“Therefore, if we want to be part of the global value chains and we want to keep engaged with the global economy then we need to do a lot at home to get our industry up and moving so that they can compete with the world’s best. And that’s how we can be a fair player in the global economy,” he added.
On the issue of tariffs that the US has been arbitrarily imposing on India, Dhar said, India’s inability to participate in the global trade agreements is “creating a whole host of problems for us.”
He underscored the fact that since the Production-Linked Incentive (PLI) scheme was rolled out by the government four years back, which was designed to boost domestic manufacturing and reduce reliance on imports, India’s manufacturing sector has not gained any competitiveness.
Activating Diplomatic Backchannels
Dhar, who has been instrumental in the designing of several trade pacts, said that the need of the hour, in order to settle the trade tiff between the US and India, is to activate the diplomatic backchannels.
“There is a need to activate the diplomatic backchannels. It is very important at this point. And, India and the US have a number of forums, bilateral forums through which they have been constantly engaging on really ticklish issues over the past several years. The sooner this happens, the better it would be for India and the global economy. Because neither India nor the US can afford to have an impasse,” he said.
Dhar also said there can be an additional challenge from India’s end to convince Trump to keep the issue of his role in Operation Sindoor aside and only then there can be some kind of rapprochement.
Trump has been consistently claiming since 10 May that it was the US that brought about a ceasefire between India and Pakistan during Operation Sindoor, which New Delhi has vehemently denied.
