Yesterday, the US Senate approved the passage of National Defence Authorisation Act 2020 with a proposal of giving a NATO-ally status to India. The legislation, aside upgrading India’s status on par with countries like Israel and South Korea, will pave way for increased India-US defense cooperation especially in the Western Indian Ocean maritime security, counter terrorism, counter piracy, and humanitarian assistance. Within 180 days of enactment of this legislation, US defense secretary will submit a report on the joint Indo-US joint military exercises and defense cooperation in the Indian Ocean Region. The report will be processed by House of Representatives and once the House approves it, both Houses would recommend the amendment for President’s final signature to make it into a law.
The upgrade will immensely enhance the Indo-US strategic ties and will ease India’s high-end defense purchases from the US. This new elevation further to the recognition of India as a “major non-NATO ally” in 2016, followed by the signing of foundational agreement COMCOSA (Communications Compatibility and Security Agreement) during the maiden 2+2 Ministerial Dialogue in 2018, reinforced growing convergence and cooperation between both countries.
Expectedly, these promising developments have invigorated new hopes of deepening Indo-US strategic partnership. But conflicting messaging of President Trump, reckless name calling of India on trade tariffs, and increasing carbon emissions equating it with China has triggered fresh doubts. With frequent scathing references to India’s import duties the US dubitably etched itself as a big bully. Further, the termination of India’s “Generalised System of Preferences” for not assuring an “equitable and reasonable” access to its markets created fresh strains in Indo-US ties. Under GSP over 2000 Indian products worth $5.6 billion entered US markets duty free in 2017. Trump’s decision which came days after the new government took charge widened the gulf. In retaliation, India imposed duties on 28 American products including almonds, walnut, pulses, and apples after a delay of one year. Citing security reasons, America last year imposed 25% tariff on steel and 10% duty on Aluminium products from India. India refrained from imposing duties in the hope of resolving the issue through negotiations. After America pulled the plug on the GSP, India imposed retaliatory duties.
America is India’s largest trading partner. The volume of trade in goods and services accounts for $142.1 billion with the trade balance in favor of India. To mitigate the trade deficits, India began importing crude from America from 2017 despite the huge geographical distances. While it takes eight to ten days for oil imports from West Asia to reach to India, the wait is 50 days long for American crude imports. After America’s waiver of sanctions for importing oil from Iran has expired in April, oil supplies from the US increased by four-fold to 6.4 million tonnes. Similarly, to address Trump’s obsession with trade surplus, India increased its defense purchases and lined up $10 billion worth orders.
Being a developed economy, to protect its domestic interests, India imposes duties due to which it is derided as protectionist by economists. On a comparative scale, developed countries like Japan, South Korea, Australia and the US outmaneuver India in terms of higher duties. India’s regulatory pricing of the stents, knee implants from American companies, tightening of e-commerce rules, imposing licensing requirements on imports of Boric Acid, and the February 2019 draft the policy of localization of the server farms and data centers in India compounded Trump’s fixation of India hurting America’s business interests.
In response to India’s new draft policy, America threatened to impose data localisation restrictions on Indian companies thereby increasing operational costs for Indian companies and demanded removal of tariffs on all ICT products. These latent trade irritants that have persisted from the time both countries started trading have become more irksome due to Trump’s impatience. Trump’s transactional approach and blunt public references have complicated America’s relations with its traditional partners and India is no exception.
While trade transactions have been one major area of dissonance, India is feeling the heat of America’s sanctions on Iran and Russia which are overstepping its “red lines”. Especially America’s opposition to India’s purchase of $ 5.2 billion Russian S-400 Triumf missile defense system triggering Countering America’s Adversaries Through Sanctions Act (CAATSA) is now a major bilateral irritant. During Secretary of State Mike Pompeo’s visit to India days ahead of Modi-Trump meeting along the sidelines of Osaka G-20 Summit, External Affairs Minister Jaishankar Subramanyam asserted that India would act on “what is in our national interest”. He added, “India has many relationships with many countries, many of them of long-standing. They have a history. And part of that strategic partnership is the ability of each country to comprehend and appreciate the national interest of the other. And part of that strategic partnership is the ability of each country to comprehend and appreciate the national interest of the other”. India has unequivocally conveyed its reluctance to make any trade-offs on vital strategic interests. Russia has been India’s major defense supplier. 70% of defense equipment in armed forces is of Russian origin.
Similarly, India is facing a shortage of oil supplies due to US sanctions on Iran which accounts for 11% crude imports. With a waiver of sanctions from May, India was forced to cut down its imports to zero. American sanctions on Venezuela also affected oil supplies. Simmering US-Iranian tensions have heightened India’s concerns of energy security and the safety of over eight million expatriates living in the Gulf region. Driving home the message of the fall out of the exacerbating tensions between the US and Iran, Jaishankar told Pompeo, “the developments in this region will affect the fragile world economy and the U.S. must not do anything to exacerbate the tensions”. Setting a stage for the big meeting between the leaders of both countries, New Delhi has clearly spelled out its unwillingness to compromise on core bilateral issues.
Growing fissures over various issues between countries raised speculations of differences creating a rift in what is now a deepening strategic partnership. Summarising the outcome of his talks with Indian counterpart, Pompeo said, “partnership is already beginning to reach new heights” and “great friends are bound to have disagreements”. But ahead of Osaka meet, Trump tweeted, India’s high tariffs on the US goods are “unacceptable” and must be “withdrawn”.
Amidst mounting frictions, Prime Minister Modi held talks with President Trump along the margins of G-20 Summit at Osaka. Lending credence to the Pompeo’s assertion of “Modi hai to mumkin hai” the focus was on ironing out outstanding differences. Modi publicly listed out four principle issues for discussion- simmering crisis in Persian Gulf, by implication its impact on India’s oil imports and fragile security in the region; readiness to resolve trade issues; 5G and defense (India’s plans of purchasing S-400 from Russia). Though the outcomes of the meeting are not known, officials described it as “positive” and “pragmatic”. After the talks, Trump made no reference to the tariffs but said that there “would be big things to announce big trade deals”. Clearly, the focus of Trump has been trade. As agreed during the talks, reports suggest that US trade representatives are going to arrive in India for talks next week.
While it is likely that India might make concessions on trade tariffs, Trump’s hyphenation of India with China with respect to trade practices is utterly atrocious and imprudent. India’s trade surplus of $23 billion is measly compared to China’s trade surplus of $419 with the US. America derides India’s stringent regulatory trade procedures and protectionist practices. As opposed to Indian trade policy, China’s predatory practices including infringement of IPR and intellectual espionage are perilous.
With President tipped to transit into election mode, his tirades against nations with trade surplus might be much shriller. Given his enthusiasm to keep campaign promise, he might as well approve investigation of India’s protectionist practices under section 301 in case of delay in reaching a bilateral trade agreement. Trump flagged off tariff regime on China after a green signal from USTR. Trump’s uncertain foreign policy has confounded strategists but till now he hasn’t wavered from his campaign promises. Having promised to enact, “free, fair, and reciprocal trade agreements” Trump might adopt an inflexible approach towards trade related issues. While nations are known to advance their interests, Trump’s blatant transactionalism overstepped the decorum of diplomacy.
Ideally, at times when US-China trade tariff war is snowballing into a cold war with animosity slowly permeating into other aspects, the US must consider deepening its relations with India, with matching human resources and strategically located in the Indian Ocean region to stall China’s march. Besides bolstering defense cooperation with India, to checkmate the global reach of Huawei, the US must consider collaborating with India to develop 5G technology. Given the growing face-off between the US and China, the rise of a democratic India will be in the best of interest of America and the region as well. Besides, India’s commitment towards free and open Indo-Pacific bodes well America’s objective of a peaceful and stable Indian Ocean Region.
Post-Osaka talks, White House briefing acknowledged “The leaders affirmed that as responsible democracies, a close partnership between the United States and India is central to global peace and stability”. A robust strategic partnership between the oldest and largest democracy will bode well for world order. Countries should make some concessions without crossing redlines to give a fillip to Indo-US ties.
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