It's Time for India to Return to the Trade Negotiating Table with the U.S.
With all eyes on the tariff standoff between the Trump Administration and China, the decision by the Administration to revoke India’s General System of Preferences (GSP) status has raised the stakes on the trade ties between the two countries. Despite the growing U.S.-India national security cooperation in recent years, U.S.-India trade and economic issues remain a major challenge holding back bilateral ties. India has clearly gotten President Trump’s attention for its continued trade barriers against American companies. Such attention carries significant risk for India, for newly re-elected Prime Minister Narendra Modi, and for a healthy U.S.-India relationship.
While India has downplayed the loss of preferential access for its exports to the United States, these benefits matter directly for Indian exporters. India is the largest beneficiary under GSP, and its exporters benefited to the tune of $5.7 billion in 2018. India recognizes the significance, as it’s quietly exploring potential support for impacted exporters. Exports fueled by GSP benefits and the nascent trading relationship they represent have long represented real jobs for Indians from Mumbai to Bangalore. For an administration that stressed the importance of manufacturing, exports and economic growth in its first term at a time of active public debate about how to grow employment, this loss should matter, and should motivate stronger efforts to get things back on track.
Moreover, the inability of the two sides to cement a trade package through this GSP period foreshadows more tension ahead. U.S. officials might not stop at suspending GSP benefits to address longstanding concerns. India’s barriers include localization policies for the information technology sector, major hurdles to patent protections for innovative medicines, and insufficient enforcement of copyright violations impacting the American movie industry. Administration officials have already signaled they could take additional actions, including a more comprehensive Section 301 investigation or greater enforcement actions under its annual report on intellectual property protection, unless solutions can be found. India’s inability to come to the table with real solutions to modest U.S. requests have put it in a precarious situation, on the precipice of tougher action.
Such tension between the U.S. and India should be a key concern for Prime Minister Modi during his second term, particularly given his past rhetoric on trade and economic issues. Before he came into office in 2015, Prime Minister Modi pledged to move toward a more constructive relationship with the United States, improve India’s business environment, and undertake badly needed domestic reforms. In practice, however, many of those campaign pledges remain unfilled. U.S. companies in India face both longstanding and new trade barriers that target many of America’s most competitive industries, including price controls on advanced medical devices, tariffs on telecom equipment, and costly testing requirements on many products.
These actions harm not only U.S. businesses, but Indian enterprises as well. Indian protectionism limits consumer choice, costing Indian manufacturers access to key components from U.S. companies. Weak intellectual property protections and overt steps to undermine key patents and copyrights restrain India’s advancement in agriculture, manufacturing, and creative products. And inward-looking views on trade continue to give companies pause about investing in India. Even as some U.S. companies look for alternatives to China for sourcing manufactured inputs and other products, many are looking to Vietnam and the Philippines first, with India missing out on a golden opportunity.
Manufacturers and service providers in the United States and India can provide enormous opportunities for joint economic growth and greater prosperity. But they cannot do so unless India addresses unwarranted and unfair restrictions to trade. Prime Minister Modi has recognized the importance of those steps in past rhetoric, but now is the time to act: India must remove longstanding barriers that are holding back the relationship. Given a fair shot, American workers, farmers, and businesses can compete effectively in India to the benefit of both countries and their citizens.
It’s time for India to return to the negotiating table and put forward a clear path to conclusion of a substantive deal. Trade experts, businesses, India watchers, and government officials all hope it will.