Paths forward for trade: Even contentious issues can be resolved

In spite of various statements made by senior officials in the United States’ administration — statements attacking India’s position on trade — it is clear that negotiations are still underway to resolve the impasse caused by the cumulative 50 per cent tariffs imposed on Indian exports by American President Donald Trump. A team of negotiators led by Assistant United States Trade Negotiator Brendan Lynch is in New Delhi to discuss possible paths forward. While the Union commerce ministry has said this meeting does not represent the beginning of another round of negotiations, it is clear that there is still hope for a breakthrough. Indian officials have insisted that several major concessions have already been made to the American side. While it is vitally important that the interests of key strategic and sensitive sectors are kept in mind, it is also necessary to identify mechanisms by which some sort of compromise might be achieved.

 

Some paths forward are becoming clear. For example, this newspaper has reported that a trade official of the United States (US) has pointed out that it is interested only in exporting premium dairy products, such as cheese, to India, and does not want to compete in the mass market for milk and related items. Given that the dairy sector is highly politically influential and has successfully argued for protection in multiple free-trade agreements, it seems that some sort of cutoff in value terms above which tariffs are reduced sharply might satisfy both sides. A similar approach has worked in the past with Australia, a major wine producer. Tariffs have been reduced from 150 per cent to 100 per cent, and will go down to 50 per cent over the next decades for bottles of wine valued at over $5; for those costing more than $15, tariffs have gone to 75 per cent immediately and will eventually descend to 25 per cent. Similar cutoffs can be identified for dairy and other agricultural products, which have been a bone of contention between the two negotiating teams.

 

The important thing about finding some such middle ground for agri-products is that it can then be applied elsewhere as well, easing other negotiations. The negotiations with the European Union (EU) feature agri-products as an outstanding issue as well. Indian agriculture is, by and large, low-value-added and low-margin — it does not naturally compete with high-end products of the kind that the EU and others would choose to export. Most importantly, once such an approach has been identified, it only needs to pass the test of domestic politics once — it can then be applied across the board. Ensuring political acquiescence should not be difficult because it will be possible to demonstrate through sectoral models that the lost market share for existing domestic dairy producers will be minimal.

 

What is most important, however, will be a change in mindset on both sides towards a desire for compromise. This will also involve, of course, leadership at the highest levels. A recent exchange of social media posts by Mr Trump and Prime Minister Narendra Modi, reiterating their two countries’ commitment to a closer partnership, has served to take some of the heat out of the dispute. The leaders can now take another step forward by finding a solution that satisfies both their domestic constituencies. As the dairy example shows, such solutions do exist.