Hyderabad: The US President Donald Trump’s maiden India visit later this month may be a high point for Indian diplomacy but it’s difficult for Indian negotiators to hammer out a trade deal between the two countries as India will have to give the same concessions to other countries as well.
Both India and the US are part of the General Agreement on Trade and Tariffs (GATT), which later evolved into the World Trade Organisation (WTO). The terms and conditions of the GATT makes it impossible for India to make any bilateral concession exclusively for the USA.
“Under the GATT agreement, if we give any concessions to the USA then we will have to give the same concession to all other countries whom we have given the status of most favoured nation,” said Ajay Dua, a Delhi based trade expert and development economist.
Explaining the difficulty faced by Indian negotiators to hammer out a trade deal, which is acceptable to both sides, before the US President’s India visit, he said that the idea of GATT was to encourage multilateral trade.
“If you give access to the US to our agriculture market then it will have to be given to others as well,” he said.
“Because the MFN (most favoured nation mechanism) doesn’t keep any concession bilateral. It is a mechanism to encourage multilateral trade and not bilateral. That is why it has been put under the GATT,” Ajay Dua told ETV Bharat.
Under this, if a country gives any concession to any country on any item then it has to be given to all other members on the same terms and conditions.”
What is General Agreement on Trade and Tariffs (GATT)
Soon after the Second World War, 23 countries had signed the General Agreement on Tariffs and Trade (GATT), in October 1947 to shore up the global trade as a way to come out of economic slowdown. It encouraged liberal trade among the member nations, and eventually, it led to the formation of the World Trade Organisation (WTO) in 1995, covering nearly 90% of the global trade and commerce at that time.
Under the GATT, India has accorded the status of the most favoured nation to the United States. If it gives any concession to the US in its agriculture or industrial market then the same access will have to be given to other countries with the MFN status.
WTO’s Goods Council, which has 10 key panels to address the issues like agriculture, subsidies, market access among others, is responsible for managing the GATT related issues.
The US is keen to sell more apples, walnuts and almonds to India. It also wants to export its dairy products to India. Some farmers bodies have already opposed the inclusion of farm and dairy products in any proposed trade deal with the US.
It’s a difficult choice for Prime Minister Narendra Modi as the US President’s Donald Trump’s India visit is taking place ahead of Presidential election in the US later this year and the US leader is under tremendous public scrutiny to show that he was able to get trade concessions during his India visit.
In November last year, Prime Minister Narendra Modi had decided to walk away from a China sponsored Regional Comprehensive Economic Pact (RCEP) at the last moment to protect the interest of Indian farmers who feared dumping of cheap farm and dairy products from New Zealand and Australia.
He had said that the RCEP in its present form was not in India’s interest.
Within months of rejecting the RCEP deal with ASEAN and other Asian powers, including Japan, Australia and New Zealand, Prime Minister Narendra Modi will have to deal with a demanding US leader who has publicly accused India and China of taking advantage of developing country tag.
In recent times, Trump administration has also slapped duties on the import of steel and aluminium products from India, withdrew benefits available to India under the 45-year-old Generalised System of Preferences (GSP benefits) and also removed India from the list of developing countries just before US President’s India visit. All these moves have been seen as retaliatory measures taken by the US against India.
Prime Minister Modi's task has become even more complicated as giving any concessions will compel India to give the same concessions to other countries having the status of the most favoured nation (MFN).
“Later we can’t retract with regard to other nations,” observed Ajay Dua while explaining the dilemma faced by the country over a proposed Indo-US trade deal.
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