View: Modi-Trump meet at Osaka G20 provides a road map to moving Indo-US relations forward

Economy


By David M Sloan

Despite a noisy run-up and continuing, thorny challenges, the Indo-US relationship has emerged from last week’s G-20 meeting in Osaka between Prime Minister Narendra Modi and President Donald Trump with a decidedly positive trajectory. The two leaders pledged to work through their policy differences and directed their subordinates to focus on four principal issues: bilateral trade frictions; India’s defense ties with Russia, by implication New Delhi’s plans to purchase an S-400 missile defense system; India’s oil imports from Iran; and 5G technology, more precisely India’s stance towards buying telecom equipment from China’s Huawei.

Translating this ambitious negotiating mandate into agreements on these scores, however, will not be easy. And given the Trump administration’s history of impatience on trade issues with even its historically closest allies, relatively quick results will be required to head off fresh bilateral tensions.

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Any realistic road map for achieving these objectives and the enhanced strategic partnership that both New Delhi and Washington say they seek will involve difficult trade-offs and concessions. Both sides will need to adopt a holistic view of their relationship, rather than negotiating a series of one-off, unrelated agreements. While this week’s bilateral meetings – particularly US secretary of state Mike Pompeo’s in-depth discussions in New Delhi — have usefully conveyed negotiating red lines, they have also provided a sense of where both countries can demonstrate the flexibility essential to moving the relationship forward.

India’s negotiating red line is securing a US waiver that will permit it to buy the Russian S-400 Triumf missile defense system without triggering stiff American sanctions under the Countering America’s Adversaries Through Sanctions Act targeted at Russia. Some observers had earlier suggested that India was prepared to forego this purchase, particularly since the Trump administration appears determined to make good on its threat to sanction NATO ally Turkey for proceeding with a similar buy.

But Indian minister of external affairs S Jaishankar last week emphasized during Pompeo’s visit that India would act in its “national interest,” code words that the S-400 deal is on with Russia, which remains India’s largest (if not now its most important) defense supplier. Contrasting the context of India’s decision with Turkey’s on S-400 purchases, the Indian side pointed out that New Delhi’s defense ties are deepening with Washington while Turkey is increasingly looking towards Moscow. More importantly, the Indians have also signalled that any US sanctions on their S-400 purchase would jeopardize future purchases of American military hardware, estimated at up to $12 billion in the next three years.

For the US side, its non-negotiable issue is ensuring that India cease oil purchases from Iran, which has traditionally supplied 10% of its crude requirements. Although India’s ambassador to the United States, Harsh Vardhan Shringla, has stated India’s intention to comply with the US request in the interest of strong bilateral relations and to avoid US sanctions, his senior Indian colleagues in New Delhi have not been as unequivocal. In addition to stopping crude imports from Iran, the US has also urged India to halt oil imports from Venezuela, the object of separate US sanctions and a key source of heavy crude to replace Iranian supplies.

If Indian and US negotiators can agree to a trade-off on these red line issues, progress on other core bilateral irritants identified by Modi and Trump will be smoother. On trade, India is likely to agree to further reduced tariffs on the small number of Harley Davidson motorcycles that it imports, take additional steps to ease price controls on medical equipment and restrictions on agricultural imports, and move to “de-bilateralize” disagreement on data localization that is more appropriately the subject of multilateral discussions. These measures could make a small but significant dent in India’s relatively modest merchandise trade surplus with the United States, which is currently only one-twentieth of China’s surplus and less than Italy’s.

In response to Indian tariff concessions and removal of some non-tariff barriers, the United States for its part could redesignate India as a beneficiary of its Generalized System of Preferences (GSP) program. Trump’s May 31 decision to terminate GSP for India, the program’s largest beneficiary, affected $6.3 billion, or 12%, of Indian exports to the United States in 2018. While Indian officials at the time played down the economic impact of the decision, GSP redesignation assumes huge importance at a time when the Indian economy is struggling.

An Indo-US agreement on constraining Huawei’s global reach should also be achievable as part of what Trump in Osaka called “a very big trade deal with India.” Mutual concern about China, including about Huawei and other Chinese telecom companies, has been a critical glue in the New Delhi-Washington relationship for more than 15 years, even before the seminal US-India civil nuclear agreement was finalized in July 2005. At the same time, Indian negotiators may resist, as a negotiating tactic, signing on to the tough US campaign against Huawei in the absence of a more comprehensive trade package.

India’s biggest challenge will be actually closing a deal. New Delhi’s negotiators are famously tough but also famously inflexible. Their incentive to reach compromises should be boosted by Modi’s strong personal commitment to deeper and wider ties with Washington. The understanding in New Delhi is that the Prime Minister’s new team has both the responsibility and authority to break from India’s traditional go-slow negotiating mould and ink a deal. This places a considerable burden on India’s point negotiator, newly-installed external affairs minister S Jaishankar, a former Indian ambassador to the United States who has unique insights and a wide network of contacts about and in Washington.

On the US side, the biggest obstacles are its disjointed policymaking process, the lack of senior-level India expertise, and the absence of a champion for the bilateral relationship. Cutting a comprehensive deal with India that spans trade, defence, energy, and national security lines requires a robust inter-agency process that the Trump administration has thus far eschewed.

In addition, the lead position for Indo-US relations within the US department of state, the assistant secretary for South & Central Asia, remains unfilled two and a half years into the Trump presidency, and the South Asia wing of the National Security Council has been preoccupied with righting US policy towards Pakistan. There is no American negotiating equivalent of Jaishankar and, just as significantly, no effective cheerleader for the Indo-US relationship since the departure of James Mattis as US defense secretary.

To complicate these challenges for maintaining a positive bilateral trajectory, the US trade representative’s office, with White House approval, could initiate a so-called Section 301 investigation of India’s “unfair” trade practices unless an early and comprehensive agreement on bilateral irritants is reached. This is the same discretionary mechanism by which Trump has levied unprecedented tariffs on Chinese imports – and could do the same to Indian goods bound for the US market.

Though the clock is less loud post-Osaka, it continues to tick for movement on nagging bilateral issues that arguably could and should have been sorted months and, in some cases, years ago. It’s now up to Indian and US negotiators to demonstrate the same commitment, maturity, and, above all, flexibility as their leaders did last week.

The writer is the South Asia specialist for The Scowcroft Group



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