US softens stand, but FTA uncertainties far from over: Experts

The US seems to have given up its rigid stand under the Biden administration to forge congenial relations with India. However, it is too early to say if this would lead to the inking of a trade deal between them, say experts. 

On Tuesday, US trade representative Katherine Tai and commerce and industry minister Piyush Goyal chaired the first meeting of the revived Trade Policy Forum (TPF) in the Capital after a four-year gap. Both nations hope to reach some kind of an understanding to resolve issues pertaining to agriculture, non-agriculture goods, services, investments and intellectual property rights over the next six to eight months. They have agreed to set up sub-groups on each of these issues. 

Some of the experts say that the two countries are trying to iron out thorny issues under the revived TPF. And, this could be the first step towards inking a larger trade deal in future even as the Biden administration has ruled out any free-trade agreement (FTA) at this point in time.

“The relaunch of the TPF is a step in the right direction. It can also clear the decks for an FTA between both the countries at a later stage,” said Arpita Mukherjee, professor at Indian Council for Research on International Economic Relations (ICRIER).  

Biswajit Dhar, professor at Centre for Economic Studies and Planning, Jawaharlal Nehru University, said the US will have to understand India’s sensitivities. 

“Our sensitivities are in a number of areas such as agriculture market access and the US has to appreciate that. If the understanding continues and a beginning is made here, there could be closer economic ties. It is too early to say whether there would be a trade deal. But at least it could lead to trade relations between the two nations getting stronger,” he said. 

Former WTO ambassador Jayant Dasgupta, however, said he did not think that TPF and the sub-groups, even in its earlier avatar, were meant to work out an FTA. He felt they were meant to sort out problems, which were cropping up once in a while and festering without a solution.

“I think they will again be doing that unless they are given a new mandate of what would be included in the FTA. But that is formally done through joint study groups. That is a separate thing,” Dasgupta said. He said the FTA is both a political and an economic decision. 

“That has to be taken by the two heads of state really. That will not depend on whether thorny issues would be sorted out,” Dasgupta said. 

Confederation of Indian Industry (CII) director-general Chandrajit Banerjee said he was sure that the outcomes of the just-concluded TPF would help facilitate more foreign direct investment (FDI) into India from the US. 

He said, in recent years, some FDIs have come into India from US companies in the hi-tech sector. “We get about 3-4 per cent of total annual US FDI outflow. It means there is a huge potential to increase it, particularly when many large US MNCs (multinational corporations) are wanting to diversify their investment portfolios,” said Banerjee. 

Dhar said there were at least some statements, which showed that the US is trying to be more accommodative compared to the days of the Trump administration.

The Trump administration was fixated on only one issue: that India should give more market access and import more US products, Dhar said. He added that it had simply rejected India’s demand for restoring the general system of preferences (GSP) for the country. 

“Now, the Biden administration is willing to listen and consider GSP. It is sounding a little more conciliatory. If the two countries can move ahead with this kind of a spirit, I think there is a possibility of some kind of give and take in the near future. The Trump administration was not willing to discuss anything,” Dhar said. 

Ajai Sahai, director-general and chief executive officer (CEO), Federation of Indian Export Organisations (FIEO), said barring a few sectors, such as leather and engineering products, exports have largely remained unaffected, despite withdrawal of GSP benefits. He is also hopeful of a non-reciprocal GSP.

“The indication of restoration of GSP benefits is a good move as it will positively impact the leather and engineering goods space. Hope there are no conditions attached, and if at all, those conditions will have to be analysed,” said Sahai.

Mukherjee, on the other hand, said India will also have to think about lifting some trade barriers if it wants to be a GSP beneficiary once again. “If the US accedes to India’s demand, we should also look into the ask list of American technology companies, such as transparency and clarity in data sharing,” she said.

She said agriculture products are expected to be a key focus area for both nations as exporters from either side have faced hindrance in market access.

“Agriculture will play a very important role under TPF. Negotiations are expected to go beyond tariff measures and cover various non-tariff barriers. The US is a big market for India as far as agricultural products are concerned,” said Mukherjee.