Resetting trade: Govt should inform how trade talks with US are progressing

Recent statements on economic and trade relations between the United States (US) and India by senior American officials may provide some insight into what is being planned for the supposed “trade deal” that the two countries have promised to negotiate.  When Prime Minister Narendra Modi visited the US in February, he agreed with US President Donald Trump that the first tranches of a multisectoral trade agreement would be negotiated by the fall of this year. However, intervention over the past week from both the US President and his commerce secretary underlines the difficulties involved. Mr Trump reiterated his concern that Indian tariffs were so prohibitively high that “you can’t even sell anything into India”. He added that India had agreed “to cut their tariffs way down now because somebody’s finally exposing them for what they’ve done”. Whether or not this is the case, it indicates that New Delhi’s efforts to claim that its trade-weighted average tariffs are quite low are not helping. It would perhaps be better to focus on those sectors that are particular irritants to the US, and identify the tariff reductions that might be required there.

  US Commerce Secretary Howard Lutnick, however, has a slightly different approach in mind. The US, he said, requires “a macro, large-scale, broad-based trade agreement that takes everything into account”. Mr Lutnick has been given a very tough job by his President — to try and identify the relevant tariffs every country imposes on every American import into its markets, in order to ensure reciprocity. It is no wonder that Mr Lutnick would prefer his job made simpler by broadbased cuts across tariff lines. Even when it comes to particularly politically sensitive areas — such as agriculture — the commerce secretary would like to see more openness, although he acknowledged that some quotas and some limits might continue to be required. 

It is now incumbent upon the Indian government to design a strategy to cope with these demands. There is no question that lower and stable tariffs are in India’s interests — not just with the US but with most of its trading partners. The negotiations with the US, as well as the proposed free-trade agreement with the European Union that is supposed to be closed by the end of this year, should be seen as an opportunity to do precisely this. But India’s counter-offers cannot be designed and made behind closed doors. The Union commerce minister has just concluded a visit to Washington, and the government should share with the public what steps have been taken. Given the importance of the deal and of major revisions to India’s trade policy, the government should inform the citizenry about how negotiations are going, how it proposes to move forward, and what sectors may need to continue to receive protection. Openness of this sort does not come naturally to any administration, but it is worth remembering that some positive acts of economic reform in recent years — such as to agricultural procurement — have been held up because of the failure to build a domestic consensus in advance. Resetting trade with the US and the European Union would be a step forward for India, and the government must work on building domestic approval of deals as quickly as possible.