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Info Service on WTO and Trade Issues (Jun25/16) Geneva, 20 Jun (D. Ravi Kanth) — Several former Indian trade officials, including trade envoys to the World Trade Organization, have seemingly cautioned the Indian government to ensure “a fair and balanced trade outcome with the United States, which serves India’s national interest in the longer term,” as the two governments plan to conclude an interim Bilateral Trade Agreement (BTA) by end-June, according to media reports. “If excessive or disproportionate concessions are demanded on India’s hardest interests, India should take equally hard positions and resist – even at the cost of not securing a deal,” the signatories warned in a memorandum issued on behalf of Indian citizens. Moreover, “in these circumstances, the costs of no deal (i.e., navigating a US market walled off by high tariffs in the short- to medium-term), may still be lesser than the longer-term costs of an unequal pact,” the signatories argued in their memorandum. The memorandum, a copy of which was obtained by the SUNS, was issued by India’s former cabinet secretary and trade envoy to the WTO, Mr K M Chandrasekhar, former Indian commerce secretary, Mr Gopal Pillai, and Mr Ujal Singh Bhatia, former trade envoy to the WTO and later chair of the WTO’s Appellate Body, among others. The memorandum observed that the negotiations with the US to secure a Bilateral Trade Agreement (BTA) “are taking place against the backdrop of an atypical trade policy of the US.” The memorandum reminded the Indian government that US President Donald Trump, in his second term, has embarked on redrawing “the global trading system, and has been taking a series of actions in that direction, including indiscriminate use of tariff action(s).” Against the backdrop of the seeming opacity surrounding the BTA negotiations, the US and India held bilateral discussions in New Delhi last week, with the negotiators from the two countries claiming progress on market access for industrial goods and some agricultural products, according to a Reuters news report on 10 June, based on conversations with Indian sources. However, there is growing concern among Indian exporters of steel, pharmaceuticals, and sensitive agricultural products over the 25% US tariffs on imports of steel from India, proposed high US tariffs on imports of Indian generic drugs, and US demands on prying open the Indian market for exports of the controversial genetically- modified BT cotton and other products, several media reports have suggested. The Indian government is yet to provide a full account of the commitments sought by the US negotiators, as there are growing fears that India may concede to some of the American demands due to intransigent considerations, according to media reports. THE MEMORANDUM In their memorandum, the signatories noted that “while there are significant legacy trade frictions between India and the US, which have traditionally posed a major challenge to advancing the bilateral trade relationship, the recent universal and reciprocal tariff action by the US represents a paradigm shift.” The signatories argued that “the US is now using tariffs parallelly as an economic tool to limit market entry for imports from India, and as leverage to negotiate better market access for US exports to India.” According to the signatories, this action by the US “has not just distorted the entire premise of a rules-based trading system, but also completely altered the negotiation dynamic.” India, which is a major exporter of goods to the US, could face numerous adverse consequences due to a paradigm shift “from trying to secure “better” market access conditions for Indian exports, to simply protecting basic market access in the US.” Consequently, India finds itself in a difficult situation as “the primary offensive interest for India has now become negotiating to avoid being struck with the reciprocal and sectoral tariff blow,” the signatories noted. Unlike China and a few other countries, the Indian government chose not to retaliate against the Trump administration’s imposition of tariffs on steel products, auto parts, and a universal 10% tariff on all goods entering the US, on grounds of investing efforts in negotiating a BTA. “The discussion has therefore shifted from achieving mutually beneficial terms of trade, as has been the mainstay of trade negotiations so far, which seek to streamline a range of tariff and non-tariff measures (NTMs), which the two sides perceive as barriers to freer bilateral goods and services trade between them,” said the signatories. However, “the focus is instead entirely on concessions that India needs to make to avoid tariff imposition on merchandise trade and preserve its export footprint in the US market,” the memorandum suggested. The signatories acknowledged that “the ongoing negotiations with the US cannot be seen as business-as-usual,” adding that “its exceptional nature must be recognized.” They urged the Indian government to inform its citizens that “the proposed BTA will be more to mitigate the escalatory tariff action of the US and reach an acceptable compromise – “balancing the equation”, as it were – rather than a pact which actually resolves trade issues with the US.” In the ongoing BTA negotiations, the signatories to the memorandum suggested a “sound strategy to selectively concede and let the US declare “victory” in certain respects, if it can lead to successfully negotiating an exemption from the reciprocal tariff action, in the event they are levied.” As an example, the signatories suggested that “select purchase commitments and facilitating imports of large civil aircraft, electronics, gold, and crude oil, may help assuage US concerns regarding the goods trade deficit with India.” They said “careful thinking on aspects which can help the US side address their trade-deficit related pain points have the potential to have a “larger than life” bearing in the present context, and may help shelve the tariffs on India.” “At the same time,” the signatories pointed out that “in terms of the actual tariff and non-tariff concessions India offers, care must be taken to ensure that India’s hardest interests/red lines are not pushed beyond a point.” They acknowledged that while India “may no longer be able to exclude entire sectors seen as sensitive for the domestic economy from the negotiations, India should continue to safeguard the most sensitive trade-exposed aspects within them.” The most trade-sensitive tariff lines are “in sectors such as agriculture and dairy, and their related Sanitary and Phytosanitary (SPS) aspects, as well as other regulatory aspects such as prohibitions on patent evergreening codified in our Patents Act, dilution of which the US has long desired.” Given the importance of non-tariff measures for securing meaningful access to the US market, the signatories suggested that “if NTM-related issues can be addressed through the BTA, this is the approach India should take as a quid pro quo.” “While India can agree to reduce tariffs for US products, it must simultaneously secure Mutual Recognition Agreements (MRAs) on priority aspects, such as for Indian labs to issue compliance certificates of US’ SPS and Technical Barriers to Trade (TBT) requirements,” the memorandum argued. In their memorandum, the signatories alluded to the “absence of a valid Trade Promotion Authority (TPA),” arguing that “the present US Administration is not legally permitted to reduce tariffs, and can therefore make no substantial trade-related concessions in the near term.” “The tariff discussions in the BTA negotiations are accordingly expected to be restricted only to the executive tariffs levied by the present Administration,” which also “raises questions regarding the durability of any deal reached,” they said. It is against this backdrop that the signatories stressed that “if excessive or disproportionate concessions are demanded on India’s hardest interests, India should take equally hard positions and resist – even at the cost of not securing a deal.” They pointed out that “the costs of no deal (i.e., navigating a US market walled off by high tariffs in the short- to medium-term), may still be lesser than the longer-term costs of an unequal pact.” Suggesting that while the “BTA can accordingly at best be an off-ramp from the tariff escalation by the US, and a foundation for a full-fledged India-US trade deal in the future,” the signatories said India “must clearly convey the message that at this juncture, the priority is to “manage” the trade relationship with the US.” According to the signatories, “for now, negotiations and transactional deal-making are expected to remain intertwined, and India needs to come up with a winning proposition.” After securing a reset, India’s focus “must once again shift to unsheathing our own leverage towards conventional give-and-take for a mutually beneficial trade agreement with the US,” the signatories contended. Also, the signatories underscored the need for a sound “legal architecture of the BTA”, as it “remains to be seen whether the agreement will take shape as an interim agreement towards a conventional GATT Article XXIV-type Regional Trade Agreement, which would require a plan towards its finalisation with preferential trade liberalisation on “substantially all trade” (understood qualitatively), or whether tariff concessions agreed to in the BTA will be on a select number of goods (less than “substantially all trade”), entered into on a Most Favoured Nation (MFN) basis (but de facto primarily of US’ export interests).” They urged the government to ensure that “the contours of any negotiated outcome are compliant with India’s existing obligations under the World Trade Organisation (WTO) framework.” It is common knowledge that the reciprocal tariffs announced by President Trump on 2 April appear to be a “blatant disregard of the rules-based multilateral trading system (MTS) with the WTO at its core.” Therefore, “India, as an ascendant global power, should also call out the US’ action,” while insisting that Washington must “respect its commitments made towards trading partners under the rules-based international trading system.” Besides, “India must also clearly convey to the WTO community that any deal India secures with the US to avoid tariff levies should in no way be seen to be diluting our enduring commitment to WTO rules and the multilateral process,” the signatories said. More importantly, India must not “hesitate to demonstrate our own commitment to the rules-based trading order,” the signatories said, adding that “India must take a lead on efforts to build alliances, preserve the architecture of the rules-based MTS and push for its reform, at a time it is under severe stress.” Further, India should “continue to push for restoration of a fully and well-functioning WTO Dispute Settlement System (DSS), and strongly oppose any proposals aimed at diluting the mandate of the DSS,” the signatories emphasized. The signatories assured the Indian government that they are “ready to work with the Department of Commerce to support, first, a strategy that aims to secure India against the ongoing round of punitive US tariff actions (but without sacrificing India’s hardest interests), and second, a fair and balanced trade outcome with the United States, which serves India’s national interest in the longer term.”
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