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India and USA: Coming on positive track

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India and US copy copy.TIF In a major diplomatic boost to Indo-American ties, US President Barack Obama has accepted Prime Minister Narendra Modi’s invite to be the chief guest at India’s 66th Republic Day Parade on January 26, 2015. With this, Obama would become the first US president to visit India twice, completing a remarkable warming in the relationship between the leaders of the world's two largest democracies. The invitation to Obama comes after PM Modi’s highly successful visit to the US. Modi and Obama also met on the sidelines of G20 summit in Brisbane on November 14. Obama had called Modi a “man of action.” India-US bilateral relations have developed into a global strategic partnership, based on increasing convergence of interests on bilateral, regional and global issues. Regular exchange of high-level political visits coupled with wide-ranging dialogue architecture has enabled sustained momentum to bilateral cooperation and helped establish a long-term framework for India-US global strategic partnership. But the conversion of these provisions is probably far from realised.

India and the United States scripted a compromise formula on food subsidies, paving the way to remove a major irritant in the stalled World Trade Organization (WTO) deal on easing of customs rules. As part of a revised proposal, India and the US have agreed for an indefinite “peace clause” on food security until a permanent solution is found, marking a major success for the Narendra Modi government in global trade talks withstanding mounting diplomatic pressure from developed countries. A “peace clause” gives legal security to member countries and protects them from being challenged under other WTO agreements. In other words, the two countries agreed that India’s food security programmes would not be challenged under WTO rules “until a permanent solution regarding this issue has been agreed and adopted”. The latest discussion would help end the stalemate in signing into law a Trade Facilitation Agreement (TFA). India has refused to sign it as it wants a parallel agreement amongst all 160 members on public stockholding for food security.

It is to be mentioned that the government had told the WTO that subsidies might increase if procurement costs or minimum support prices (MSP) go up. MSPs are usually raised every year. The government was concerned that a rise in the subsidies given to the poor and marginal farmers will breach WTO’s prescribed limit. With the peace clause, India can offer subsidies to farmers without being dragged to the WTO dispute settlement body. Under the Agreement on Agriculture of the WTO, subsidies should not breach 10 per cent of the value of production of those crops which are stockpiled. It is also pertinent to mention that India had refused to bend on the issue of food security, linked it to the TFA and vetoed signing of the agreement. Every agreement at WTO requires consensus, and even a single member country can block a deal. Direct contacts between Obama and Prime Minister Narendra Modi has helped to end a deadlock that had prevented the World Trade Organisation from implementing a $1 trillion package of reforms to global customs rules. This pact will unlock progress toward the full and immediate implementation of the WTO Trade Facilitation Agreement, which will lower the costs of trade for developed and developing countries alike.

Positive aspects

  1. The deal for the supply of equipments has already been formalised. The US will provide unmanned aerial vehicles and ground sensors, enabling inter-operability between the special forces of the two countries.
  2. TPF has termed steps like raising FDI cap in defence and railways as positive signs. The US-India Trade Policy Forum (TPF), the top platform on bilateral trade and investment,  is a government-to-government trade dialogue aimed at increasing bilateral investment between the two nations. In his maiden visit to India as the US Trade Representative (USTR), Michael Froman Froman addressed the Federation of Indian Chambers of Commerce and Industry. This meeting took place after a gap of four years.
  3. Attributing the “breakthrough in the WTO” to personal intervention of Prime Minister Narendra Modi and President Barack Obama, the US Trade Representative has said the “mantra of chalen sath sath” will guide the trade and investment relations between the two countries. The US and India have recently resolved differences over the food stockpiling issue at WTO, paving the way for implementation of pending trade pact to ease customs norms. On November 11, India and the US resolved a dispute over food subsidies, removing a major irritant in a stalled WTO deal on easing of customs rules.
  4. The United States International Trade Commission (USITC) determined that the US industry is neither materially injured nor threatened with material injury by reason of imports of frozen warm water shrimp from India, China, Ecuador, Malaysia, and Vietnam. USITC voted 4-2 against imposition of countervailing duty (CVD) against India and other six countries. As a result of the USITC’s negative determinations, US Commerce will not issue countervailing duty orders on imports of these products from India, China, Ecuador, Malaysia, and Vietnam. The final decision of USITC brings great relief to Indian shrimp industry and its exports.
  5. The defence secretary’s mission was to revive Indo-US defence relations, especially the moribund two-year-old defence trade and technology initiative (DTTI). The DTTI is the centrepiece of our defence relationship. Under the DTTI, the US had asked India to join in co-producing and co-developing a series of cutting edge weapons and technologies. Though the US offered 10 weapons technologies, the programme failed to take off under the last government. The DTTI was established in June 2012 to cut through any bureaucratic red tape that impeded the US-India defence relationship. The two sides also decided to take steps for the extension of the New Framework for the United States-India Defence relationship, well before it expires in July 2015. In the last 10 years, US corporations sold military goods and platforms worth $ 10 billion from big corporations like Boeing, Lockheed Martin and Raytheon, mostly through the government-to-government route.
  6. India and the US have agreed to renew the 10-year defence cooperation agreement with increased focus on export licensing and technology transfer that may eventually lead to co-development of new military technologies and production of critical strategic hardware, currently used by the US armed forces.

US 2 copy copy.tif Distressing trends:

  1. Under its annual report on the trade practices of various countries – Special 301 – the US administration had even gone to the extent of almost imposing trade sanctions on India. The Government of India has told American authorities that it will not cooperate with the out-of-cycle review (OCR) initiated by the Office of the US Trade Representative (USTR) as part of the latter’s annual ‘Special 301 Report’, on India’s supposedly slack intellectual property rights (IPR) regime.
  2. The arrest of an Indian diplomat on charges of visa fraud in New York has become a major crisis in US-India relations and a source of contention within the Obama administration.
  3. Its reluctance to sanction Pakistan in the way it has sanctioned Iran, Syria and now even Russia is inexplicable politically and morally.
  4. The US is now targeting India for our intellectual property rights (IPR) and preferential market-access policies, even though no US company has been targeted in the case of pharmaceutical patents. US companies, especially pharmaceutical firms through their lobby group, had been pressuring the US administration to take strict action against India over its IPR policy. Besides, the US International Trade Commission had launched an investigation into India’s IPR laws jointly with the National Association of Manufacturers.
  5. India has expressed reservations over control of critical internet resources like allocation of domain names by a US contracted entity, saying this cannot really be reflective of the international character or community of internet users.

Potential:

  1. India can build a balancing coalition consisting of the US, Japan, South Korea, Vietnam, the Philippines, Indonesia, Malaysia, and Australia. Its emergence as a counterweight to China presents an opportunity matched by the time for a re-alignment in the American approach to Pakistan. Once Washington’s most dependable regional ally, Pakistan has become an impediment to freeing Afghanistan of the Taliban and destroying al Qaeda. Without the US, however, Pakistan would lose its primary adviser and financial source.
  2. American pressures on India on intellectual property issues will intensify as will disputes over Indian subsidies for social welfare. Without the strong cement of strategic convergence, these differences could neutralise the positives in the relationship. India and the US need to explore collaborative and creative solutions to resolve IPR-related issues that were impeding bilateral trade. US has advised that patents, trademarks, piracy, counterfeiting, compulsory licensing are “challenging issues and dealing with them directly is critical if India has to play a leadership role in the knowledge economy” and also to become a digital India.
  3. The bilateral investment treaty (BIT) between the US and India will transform in many ways economic and bilateral relations between the two countries. India has signed bilateral investment protection and promotion agreement with 82 countries. BIT would also help ensure protection of intellectual property rights (IPR) for investors. The visiting US assistant secretary of state economic and business affairs Charles H Rivkin made a strong case for India to put in place a special law for the protection of IPR to help improve bilateral relationships and growth of two economies.