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After Galwan standoff, India eyes free trade deal with US

By Arup Roychoudhury and Subhayan Chakraborty
June 20, 2020 10:06 IST
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This, officials say, can lead to an effective trading bloc against the China-led Regional Comprehensive Economic Partnership. 

IMAGE: Prime Minister Narendra Modi with US President Donald Trump.

As India distances itself from China following the clash in Ladakh between soldiers of the two countries, the Centre is keen to have another go at negotiating the India-US free trade agreement, Business Standard has learnt. 

This, officials say, can lead to an effective trading bloc against the China-led Regional Comprehensive Economic Partnership. 

The same officials, in the finance and commerce ministries, say the government is being realistic, and because of the Covid-19 pandemic and the upcoming US presidential election in November, the business end of the negotiations will happen only next year, though work is likely to begin now. 

 

“The current situation is that non-alignment is not an option, and the RCEP is out of the question for us. The recent clashes have given us a clear choice on matters of trade and commerce, and that is to go with the US to counter China,” a senior government official said, adding that discussion on the matter had begun with the US. 

“We have been here before, and we will not be seen as desperate. We are going back to the negotiating table in good faith,” a second official said. 

Late on Thursday, the US hinted it was open to restoring trade benefits under its Generalised System of Preferences (GSP) to India if it got a “counterbalancing proposal”. 

Reinstating GSP benefits has remained a key demand of New Delhi but in February, the US had classified India as a developed economy, ineligible for benefits given to developing countries. 

Now, US Trade Representative Robert Lighthizer, Trump’s point man on trade, has told members of the US Senate Finance Committee that trade talks with India were on. 

According to officials, India’s next proposal for trade talks with the US includes a step-by-step reduction in import duties on high-value US agricultural products, a trade margin policy for medical devices, and a promise to continue talks on reducing price restrictions on American tech goods. 

India’s proposal will also be predicated on the US pulling back from its tough stance on taxes on digital services imposed by India. 

The GSP is America’s oldest preferential trade scheme, which offered Indian exporters tariff-free access to the country until June 2019, when all benefits were suspended. 

While India earlier stated it would not pursue GSP benefits further, sources say the position is expected to change. 

India’s benefits from GSP tariff exemptions amounted to $260 million in 2018, according to the data from the Office of the United States Trade Representative. 

However, this was only a small portion of India’s exports to the US in the same period, which stood at $51.4 billion. 

Officials haven’t heard much from Lighthizer since he cancelled his visit to India in February as part of Trump’s team. Now, they say talks are set to begin soon. 

However, they have cautioned that details will need time to straighten out, given the ongoing pandemic, the upcoming presidential election in the US, and the fact that both nations have been at this particular juncture in talks before as well. 

The US wants India to slash its tariff rates and further open up its markets to American products. Trade talks have oscillated on these issues over the past two years. The differences had remained too large to bridge despite a push by both leaders. 

Sources confirmed that talks had started at a frenzied pace just before the ‘Howdy Modi’ event in Houston, Texas, in September last year as well as the 'Namaste Trump' event in Ahmedabad in February.

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Arup Roychoudhury and Subhayan Chakraborty in New Delhi
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