Originally Published 2014-02-24 08:30:38 Published on Feb 24, 2014
With both India and the US having differing domestic and national priorities, these countries are bound to compete and conflict on trade issues. But these must not be allowed to overshadow the larger gains that bilateral trade has brought to each country.
Trade issues hot up between New Delhi and Washington
"Close on the heels of the diplomat Devyani Khobragade affair, the US and India seem set to have another dispute, this time on trade issues. Differences over trade have been cropping up in the last few years, with almost 14 disputes at the WTO. The US International Trade Commission has begun a hearing on the impact of India's trade practices on US business and jobs. Indian officials on their part have refused to meet the USITC officials looking into allegations of unfair trade practices by India.

Differences over trade have been cropping up more and more over the last couple of years. For instance, last year, the Alliance for Free Trade, which represents 14 business groups from almost all sectors of the US economy, had petitioned the administration to raise trade issues during Secretary of State John Kerry's as well as Vice President Joe Biden's visits. Earlier, the heads of around 17 industry associations had written to President Barack Obama about India's alleged unfair trade practices, which they say harm American businesses and jobs.

The most recent case is about the US requesting for consultations at the WTO about some domestic content requirements India has put on its solar industry. By 2022, India aims to produce 20,000 MW of power using solar energy through the Jawaharlal Nehru National Solar Mission,, making it the second largest solar market in the world. The US is unhappy that as part of phase II of this project, India has put in the requirement that Indian-manufactured solar cells and modules should be used in the solar equipment instead of imported equipment. This, the US claims, is against WTO rules and will cost the US solar industry ten thousand jobs and about $200-$300 million in exports.This is the second time over the last year that the US has asked for consultations about the solar mission; the first dispute has not been settled yet. If the consultations do not resolve the dispute, the US is entitled to take India to the WTO Dispute Settlement Mechanism. Interestingly, the US has gone ahead with this action against India despite requests from environmental activists who said that the US should not act against India on this as it will help India reduce its dependence on non-renewable energy. On its part, India has said that it is investigating reports that the US is supporting American manufacturers of solar panels, also against WTO rules.

Further, there are other issues on which US and India don't see eye-to-eye. For instance, the main complaint American businessmen have is with regard to the perceived lack of sufficient enforcement of intellectual property rights (IPR) in India. India has already been put on the "special 301 priority watch list" of countries which do not protect IPRs. American businesses now want the US to categorise India as a "priority foreign country", a category reserved for the worst offenders of intellectual property. If this suggestion is accepted, the US can even impose trade sanctions on India. A related complaint is with regard to India's policy on generic drugs, especially its refusal to accept "evergreening", a scheme used by pharmaceutical companies to continue having a patent over a drug even after its patent has expired by modifying it slightly. India's decision to grant compulsory licenses to (within Indian and WTO rules) to anti-cancer drugs by Novartis and Bayer has infuriated Big Pharma in the US. The US has even banned Ranbaxy selling drugs from its fourth plant in the US. While the concern about IPR is justified, India's generic drug policy is driven by the need to provide access to cheap drugs to its large poor population, few of whom have access to top quality healthcare. This has the support of the judiciary as well. So, this policy is unlikely to change and should not be changed, since it is WTO compliant.

Another concern American corporations have is to do with India's tariffs on imports of agricultural products. While India has put tariffs on agricultural products, these are justified under WTO laws and are meant to protect Indian farmers against price reductions caused by an inflow of cheaper products. The US Commerce Department ordered an investigation into alleged dumping of steel in the US market by India and some other countries. Another repeated demand is to open up more sectors to foreign investment. These have been partly addressed through the government's decision to allow investment in defence, telecom and insurance and also FDI in multi-brand retail recently which opens the doors for Walmart, Target, etc to enter India. However, the ceiling on foreign investments has not endeared India to American companies. The US has also pushed for a Bilateral Investment Treaty (BIT) on which negotiations have been going on for a long time. Though India is also keen on the treaty, it has reportedly put conditions for signing the BIT: that its judiciary will have the last word on all commercial disputes and that its sovereign guarantees will not be invoked in such cases.

The new US immigration bill, which has been passed by the Senate, and which will substantially hike the fees for H-1 B visas, is also of concern to India. Though, at the moment, it seems unlikely that the bill will get passed in the Republican-dominated House of Representatives, if passed, it will have serious implications for India's IT companies. The only way out for Indian IT companies would be to change their business model.

As India moves towards becoming a middle income country, inevitably the US and India will become competitors for the same markets in several cases. With both countries having differing domestic and national priorities, they are bound to compete and conflict on trade issues. But these must not be allowed to overshadow the larger gains that bilateral trade has brought to each country.

(The writer is an Associate Fellow at Observer Research Foundation, Delhi)
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