Opinion Stand up to Trump: No trade deal is better than an unfair one

First, both sides must agree to a written document before its contents are announced. Going by media reports, Trump, at the last minute, unilaterally changed what was agreed upon in some of the bilateral trade deals between US officials and those of the partner countries, to the disadvantage of the latter. India must ensure that it does not become another victim of a one-sided deal announcement by Trump.

Second, India must look out for the US making new demands in the final stages of the negotiation and insisting on them as a condition for closing the deal. This has been a part of the US toolkit for decades at the General Agreement on Tariffs and Trade (GATT)/World Trade Organisation (WTO). Even at the risk of delaying the finalisation of the deal, Indian officials must not agree to last-minute demands without due examination and consultation with concerned ministries and other stakeholders. These should be postponed for the second part of the deal at a later stage.

Third, Trump weaponising tariffs provides an important lesson to the rest of the world: Being dependent on a few markets for exports is a recipe for becoming hostage to those countries’ economic and political interests. India needs to ensure that the bilateral trade deal does not further deepen its dependence on the US market. In addition, it would be in India’s long-term interest to not become complicit in the US game to isolate China by compelling countries to de-couple from global value chains involving China. India needs to guard against any provision in its bilateral deal with the US that ostensibly promotes resilient supply chains but actually targets China. Further, the government must carefully study whether the bilateral deal curtails India’s autonomy to decide which countries to trade with.

Fourth, in the frenzy of bargaining in the final stages of negotiations, the less powerful parties are known to abandon many of their long-held red lines. India needs to exercise extreme caution on this score. PM Modi’s emphatic assertion that the interests of farmers and fishermen would be protected has certainly been reassuring. However, India’s negotiators cannot afford to ignore red lines on issues related to the digital economy now and intellectual property in the second phase of negotiations. As the digital sector can impart significant buoyancy to India’s economy, these issues merit a detailed discussion.

The following issues can be said to constitute the core of US interests in the digital economy: First, prevent India from imposing taxes on digital players headquartered in the US; Second, prevent India from leveraging its data advantage and creating domestic digital champions, including through sharing anonymised government data exclusively with Indian domestic entities; and third, prevent India from effectively regulating the digital sector.

The US can secure the above and many other objectives in the digital sector by getting India to agree to the following sentence in the trade deal: “Both countries agree to grant non-discriminatory treatment to digital services, and suppliers of these services, from the other country”. India’s negotiators must recognise that this would substantially compromise the prospects of the country creating a vibrant domestic digital sector. Such a provision would prohibit the government from giving a boost to domestic digital players, for example, by mandating that all its entities use the homegrown communication app Arattai, instead of other apps. It would also tie the government’s hands from supporting its domestic start-ups through various policy interventions. Finally, it would effectively prevent the government from raising revenue by taxing activities in the digital sector overwhelmingly dominated by US players. Concessions on digital issues in the trade deal would render India’s atmanirbhar and swadeshi objectives hollow and devoid of substance.

Before closing the trade deal, the government must make an objective assessment of how it would modify India’s rights and obligations vis-à-vis the US as they existed on the day when PM Modi and President Trump announced the launch of negotiations for a bilateral trade agreement (February 13). If the recent US trade deals with Japan, EU and Vietnam are any indication, India may have to remove its most-favoured-nation tariffs on most industrial goods and some agricultural products, as well as provide concessions in other areas, while the US may only lower the 50 per cent tariff on Indian exports to about 15–20 per cent.

Given the asymmetry in political and economic clout between the US and India, the odds are stacked against the latter in the ongoing bilateral negotiations. Further, with India adopting a non-confrontational approach, its negotiators have been left with few chips in their pockets to bargain for reduction or elimination of the US tariffs. In light of these constraints, it would be a major achievement if India’s negotiators manage to secure a mutually beneficial bilateral trade agreement with the US. If the assessment is that the outcome is skewed against India’s interests, the government must not hesitate to walk away from the negotiating table. In this context, it is relevant to recall Chanakya’s wisdom — when benefits accruing to kings under a treaty are to be distributed unfairly, war is preferable.

Das is a former trade negotiator and the author of the recently published book Strategies in GATT and WTO Negotiations. Views are personal