India and the United States are in full engagement mode over a possible limited trade agreement. This agreement has the potential to dramatically change their economic relationship for the better. Indian trade officials are in Washington now for these negotiations. They read alarmed reports that warn about the effects of India’s 340+ Quality Control Orders (QCOs) and its similar overall defensive stance towards agriculture. The two countries are currently negotiating terms for an agreement centered on manufactured goods. This deal will showcase each country’s comparative advantage: the US taking advantage of its capital intensive output, and India focusing on labour-intensive exports.
India has put over 700 Quality Control Orders to block low-quality imports and as a policy, push for more domestic manufacturing. In Baltimore and elsewhere, stringent regulations have raised alarms in Washington. US officials contend that these measures impose insurmountable obstacles to market entry for US products. The US has focused many of its previous export initiatives on exporting basic agricultural products, such as maize, soybeans, cotton, and corn to India.
These negotiations are extremely important. US President Donald Trump has been very vocal about encouraging India to increase its imports of US grown corn. India’s Finance Minister Nirmala Sitharaman has been unequivocal that the country will not budge on its protections for its farmers and dairy producers. She underscores the need to protect the agricultural base both for economic stability as well as political necessity.
Richard Rossow, senior fellow at the Center for Strategic and International Studies, explained how complex the negotiations were.
“There are two real challenges to concluding an initial agreement. First on the list is US access to the Indian market for basic agriculture products. India will need to protect its basic agriculture sector for economic and political reasons,” – Richard Rossow
With each passing day, as these important talks continue, the stakes couldn’t be higher. Ajay Srivastava, a Bombay-based trade analyst, pointed to the upcoming week as the most critical moment. It will be critical in determining whether India and the US can reach a narrow “mini-deal” or if they will mutually withdraw from their negotiations.
“The next seven days could determine whether India and the US settle for a limited ‘mini-deal’ or walk away from the negotiating table – at least for now,” – Ajay Srivastava
The basis of the proposed mini-deal will be lowering specific tariffs and making concrete commitments to shift behavior. In exchange, it will table more complex issues such as services trade, intellectual property rights and digital regulations for later negotiations. This structure reflects the initial concept outlined by Trump and Indian Prime Minister Narendra Modi during their first summit earlier this year.
“The two leaders [Trump and Modi] laid out a simple concept in their first summit this year. The US would focus on manufactured goods that are capital-intensive, while India would focus on items that are labour-intensive,” – Richard Rossow
US officials are rightly concerned about the surging tide of import-quality rules from India. The companies think that these regulations pose barriers for businesses to enter the Indian market. The proposed potential trade agreement would eliminate tariffs on manufactured products, including in the US case, automobiles. Doing so could provide powerful new inducements for each side to perform.
India very jealously safeguards its agricultural sector. This is fueled by fears of food sovereignty and people’s livelihoods for millions of small-scale farmers. This security-first approach creates a major barrier during negotiations, as any compromise may elicit a political firestorm at home.
“If the US were to say ‘no deal’ if India does not include access on basic agriculture, then clearly American expectations were not set correctly. Any democratically-elected government will have political limits to commercial policy choices,” – Richard Rossow
Today, trade between India and the US is still relatively modest, at around $8 billion. India’s major exports to the US are rice, shrimp and spices, while India’s imports from the US mainly consist of nuts, apples and lentils. This stark imbalance underscores the significant room for growth in their bilateral agricultural trade if both countries are able to address ongoing challenges.