A deepening trade divide

A senior academic with expertise in international trade agreements explains why India and the US still have much ground to cover in terms of trade ties. Notwithstanding their geo-strategic bonhomie, India and the US remain far apart on international trade. The distance arises from their inabilities to reconcile to a bilateral trade relationship simultaneously accommodating both of their major sources of distinct global comparative advantages. These advantages for the US are in export of intellectual property (IP) - intensive goods and services such as pharmaceuticals and entertainment and education products - whereas for India, they are in export of skilled professionals, particularly in IT. US and India have locked horns at the WTO talks on several occasions. Subsidies by rich countries to their farmers have been a source of contention, as have been safeguard mechanisms for triggering protective tariffs during surges in farm imports to developing countries. These are issues on which the US-India disagreement reflects the division between developed and developing country blocs within the WTO. Beyond these, at the bilateral level, IP protection and movement of skilled professionals remain hotly contested factors between the two countries. The US has always been critical of the domestic IP laws in India and has been indicating India as a 'priority watch list' country in its Special 301 report, which is an annual assessment of the US government's views on quality of national IP regulations across the world. India defends the 'flexibility' in its IP laws on the grounds of encouraging cost-saving innovations and addressing concerns of public health, particularly affordability of medicines. Strong IP protection is a key demand of US businesses in free trade agreements (FTAs) negotiated by the US and is visible in the recent US FTAs, including the Trans-Pacific Partnership (TPP) and the ongoing Trans-Atlantic Trade and Investment Partnership (TTIP). India's new patent rules try balancing the trade-off between IP protection concerns of multinational companies (MNCs) and the domestic imperative of encouraging generic drug development for ensuring supply of affordable medicines. But the rules still fall short of expectations of US businesses and India continues to remain on the US Trade Representative's (USTR) priority watch list. The discord is not limited to IP and has spread to other areas of bilateral trade, most notably movement of Indian IT professionals to the US. The US capping of H-1B visas and hiking of visa fees have been sharply criticised by India. The Indian finance minister described the moves 'discriminatory' towards Indian IT industry, with India initiating dispute proceedings against the US at the WTO. India argues the capping and hiking militate against the US commitment to provide uniform access in its domestic market to service providers from other WTO member countries. Battle lines appear sharply drawn on the subject with the US lawmakers refusing to soften stance on temporary skilled migration. The bipartisan 'H-1B and L-1 Visa Reform Act of 2016' Bill recently introduced in the US House of Representatives underscores across-the-board political support for further curbing skilled migration. The friction on IP and skilled migration, while highlighting important sources of comparative advantages for both countries and their keenness to protect them, also reflects the difficulty of both countries in compromising on these issues. India's current posture on US migration policies marks its inclination to match the US in talking tough on trade. The spat has little prospect of getting resolved in the near future as IP protection and skilled migration have deep stakes for important political constituencies in both countries. The outlook is also dim for the two countries in joining a common trade pact. Prospects of the US-led TPP, for example, including India at any stage in the foreseeable future would encounter the almost insurmountable challenges of IP and migration, making such prospects negligible. Compromise appears nowhere in the scheme of things of both countries given that inward-looking anti-trade views are fairly dominant in both at present. Dr Amitendu Palit [@amitendu1] is Senior Research Fellow and Research Lead (Trade and Economic Policy) in the Institute of South Asian Studies (ISAS) in the National University of Singapore (NUS). His research interests include regional trade agreements, India and the Asia-Pacific, China-India comparative studies.