India-US trade: give some, take some

Livemint, July 29, 2016

By PRADEEP S MEHTA and Smriti Bahety

Both India and the US must differentiate between core and non-core issues to make way for trade-offs for a mutually beneficial deal

India and the US have long shared democratic values, a vibrant multicultural fabric, entrepreneurial spirit and economic interests. Despite Indo-US trade being worth more than $100 billion today, their economic relations are facing a bit of a headwind. Given the changing geo-economic calculus in the world, a strong and renewed commitment between India and the US is vital. Arguably, a bilateral investment treaty (BIT) would enhance the political commitment, reduce uncertainties and boost the investment climate. Albeit, like any other international agreement, both must be willing to give some and take some.

Trade and investment between India and the US has been on the rise with ambitions of reaching $500 billion in the near future. With this backdrop, the two countries have been exploring the possibility of a BIT for the past eight years (though on and off). However, recent remarks by the US ambassador to India, Richard Verma, suggest that a mutually acceptable deal is a long way away.

The reason for the slowdown in the negotiation momentum can be attributed to two factors. First, India and the US have had fallouts at the WTO pertaining to poultry imports, solar panels and more recently on visa fee hikes by the US. India has long been voicing the need for an improved, enhanced and liberalized visa regime for the movement of professionals from India to the US. The recent fee hike in two major visa categories (H-1B and L1) has not gone down well with India or Indian technology companies. India also wants a totalization agreement which would mean a saving of nearly $4 billion for Indian technology companies operating in the US.

The second reason is attributable to the significant differences in India’s new model BIT and the US’ 2012 model BIT. India has clarified that it will renegotiate existing treaties and forge new ones based on its new model. India’s model BIT notably excludes most favoured nation clause, taxation, compulsory licences and intellectual property rights from its purview and modified the definition of ‘investment’. More importantly, on the most controversial provision of investor-state disputes, it requires investors to pursue domestic courts for at least five years before resorting to international fora.

The US wants a liberal BIT more on the lines of its 2012 model and perhaps like the ones India has signed with South Korea and Japan. It is important to note that model BITs are only a base to discuss a mutually acceptable deal. The commitments under the Indo-Korea or the Indo-Japan agreements are part of a comprehensive economic partnership treaty with provisions for movement of natural persons as well. Moreover, India did not have the new model BIT until mid-2015 and the experiences from international arbitration have made many countries cautious. There is a growing wave of scepticism about investor-state arbitration and there have been talks for revamping the system, including mandating exhaustion of local remedies and establishing a permanent appellate body. It is hoped that with the enactment of the Commercial Courts Act of 2015, the time taken to resolve commercial disputes in India would reduce from the present average of four years.

Given this backdrop, one option for India and the US is to pursue a broad- based agreement, which might be ambitious but will help in fixing the framework and settling sticky issues pertaining to tariffs on ICT goods, agricultural goods, mutual recognition of testing certificates, movement of workers including a totalization pact which come up from time to time. The parallel course is to find a midway between India’s model BIT and US’ model BIT. It is anybody’s guess that neither country will concede in entirety, but both must differentiate between core and non-core issues to make way for trade-offs for a mutually beneficial deal.

Pradeep S. Mehta and Smriti Bahety work for CUTS International, a public policy research and advocacy group.

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