From state visit to a more robust trade relationship

General Studies Paper 3

Context

• Prime Minister Narendra Modi’s State visit to Washington on June 22, 2023, was historic — the first for an Indian head of state in 14 years, and only the third for an Indian leader in 75 years since Indian Independence.

A central role for trade

• In comparison with the substantial progress in many areas, the economic, and more specifically, trade relationship between the two countries, is growing — surpassing U.S.$120 billion — but it continues to underperform relative to the sheer potential.
• If this strategic partnership lives up to its billing as one of the most consequential in this century, then trade must be pushed to a more central role as the U.S.-India story continues to unfold.
• India is exhibiting a remarkable openness to negotiating new trade relationships with important partners around the world.
• In the last two years, the Narendra Modi government has inked new free trade agreements (FTAs) with the United Arab Emirates and Australia and launched or reinvigorated negotiations for parallel deals with the European Union, the United Kingdom, and Canada.

The U.S.’s approach

• In contrast, the Biden administration maintains that it has evolved away from FTAs and discovered a better approach to trade, emphasising resilient supply chains, reshoring or friend-shoring, and prioritising labour rights and climate-friendlier production over craven and mistaken globalisation.
• This policy has many sceptics at home and abroad, particularly since it ignores that all these objectives could be robustly addressed in a revamped FTA agenda.
• It is the moment for the U.S. administration to meet India halfway in its trade policy before the strategic side of the relationship leaves the trade side much further behind.
• There were important results from Mr. Modi’s State visit in resolving six disputes under the World Trade Organization (WTO).
• Building on these wins, and looking to opportune moments ahead following national elections in both countries in 2024, trade negotiators on both sides must be tasked with a more ambitious mandate by their leaders.

India’s Progress in Trade

• India’s is in progression in negotiating FTAs with its other trading partners through work at the Atlantic Council.
• India’s agreements to date fall far short of the U.S. gold standard, i.e., the U.S.-Mexico-Canada Agreement (USMCA), but the gaps are decreasing.
• Even in the sensitive area of agriculture, India has shown surprising readiness to gradually open its market when offered opportunities to win concessions in return through FTAs.
• Australia, in the Economic Cooperation and Trade Agreement, obtained important gains in the Indian market for wine, wool, and sheep meat, among other goods, while India won nearly duty-free access to the Australian market.
• In fact, the U.S. and India have been able to agree to transactional concessions in their respective markets (e.g., mangoes and pomegranates for India in exchange for cherries, hay and pork for the U.S.) through the bilateral Trade Policy Forum (TPF) even without an active FTA negotiation.

Way forward

• The PM State visit should be a starting point for a more ambitious trade agenda going forward. U.S. and Indian trade negotiators already know how to go small, and even achieve results along the way.
• But the trade relationship deserves more attention, and a stronger mandate from the leaders of both the Biden and Modi administrations.
• With greater ambition, the often-mentioned target of $500-$600 billion in bilateral trade by 2030 can easily be attained and surpassed.