India-US ties still problematic

While merchandise trade grew at a sluggish 0.47% in FY14, Washington remains concerned about India's IPR laws

Even as India and the United States prepare to forge deeper ties, the future of their economic partnership remains fragile, and accomplishing the goals set during President Barack Obama's visit to India in January may be a tall order. Bilateral trade between the two countries has slowed despite good-faith gestures by Obama and Indian Prime Minister Narendra Modi that point to warming relations between the two counties. Obama is the first US president to have been the chief guest at India's Republic Day function. The visit, which was rich in symbolism, also saw the two countries hammering out important issues concerning trade and investment, including ways to make doing business easier for American firms in India.

India and the US have decided to take the two-way trade in goods and services to $500 billion by 2020 from $100 billion now. If recent trends are anything to go by, the target may be difficult to achieve. Total merchandise trade between India and the US rose by a sluggish 0.47 per cent in 2013-2014, in contrast to 25 to 30 per cent between 2007-08 and 2011-12.

For long, the US has held that India's intellectual property rights (IPR) regime is not conducive to supporting growth in trade. And it remains steadfast in its stand. Earlier this month, the US Chamber of Commerce's Global Intellectual Property Centre (GIPC) released its third annual international IP index, in which India was ranked 29th of the 30 countries surveyed for having a poor IPR regime. "We want the Indian government to not make compulsory licences (in the case of pharmaceuticals) an easy approach for commercial purposes and that they should be invoked only on emergencies," said Patrick Kilbride, executive director, GIPC.

Furthermore, GIPC has asked the Office of US Trade Representative (USTR) not to change India's designation as a 'Priority Watch List' country, a designation given by USTR to the worst IPR offenders of the world. "There has been no improvement on the policy front in India. So we do not think there should be a change in the designation," Kilbride added.

What, according to GIPC, also acts against India is that it is neither a signatory to any of the international treaties on IPR nor does it have a free-trade agreement with a country with significant IP provisions. The government had announced that it would roll out the National IPR Policy by early 2015, but it has only managed to bring out a draft policy so far. Officials in the department of industrial policy and promotion, which is in-charge of drafting the policy, say the government is collating comments on the policy and will unveil it soon.

Till that happens, trade between the two counties is unlikely to gather momentum. "While India's failure to provide adequate and effective intellectual property protection disadvantages the US industry, it also harms India by stifling its own economic development," says Brian Pomper of the US-based Alliance for Fair Trade with India (AFTI).

Apart from India's patent regime, the US also objects to India's subsidy programme for its farmers. America's wheat industry has accused India of offering export subsidies, even though they are illegal under its WTO commitments. "Increasing support levels give Indian farmers an artificial incentive to produce more wheat," says the US Wheat Associates. "In fact, India's wheat production increased 35 per cent over seven years from 2005-06. That buoyed world wheat supplies and increased pressure on prices that hurt farmers in other countries."

With no conciliatory announcements in the Budget, the standoff continues. The government "failed to make any bold announcement on the transfer pricing issue and GAAR," says an American executive in India who does not want to be named.

In defence too, the US has been pushing the Indian government to increase the foreign direct investment limit beyond the current 49 per cent if it wants transfer of technology. "India has to undertake some quick reforms if it wants American investments. It will not be easy to improve its ranking in the World Bank's Ease of Doing Business report. Only if that happens will the US businesses will sit up and take notice," says Sanjay Puri, founder and chairman, US India Political Action Committee.