January 2020: India in the World Trade Order 2020?

India and the US are looking for an “exclusive partnership” that can give companies of both the nations preferential market access, India’s outgoing Ambassador to the US Harsh Vardhan Shringla has said. An exclusive partnership in trade that can give US companies preferential market access to India and Indian companies the preferential market access to the United States.

In 2019, the bilateral trade between India and US increased from USD142 billion to USD160 billion

The ongoing conflict between the United States of America and Iran is a major cause of concern for India. While it may not seem that the conflict affects the country’s economy directly, the imports and exports between India and Iran will feel the impact if the conflict continues to escalate.

For India, both countries are seen as allies in one way or another, whether it is through trade or via other foreign policy. Therefore, India has to be cautious in the way it approaches any further conflict between US and Iran.

India and Iran:

Bilateral relations between Iran and India were established in 1950. Up until now, India has exported a large portion of its oil consumption from the Persian Gulf nation. Oil prices have already climbed a bit and will continue to do so, creating a ripple effect for India’s economy. If the country spends more on oil imports, which is essential, it will be a massive blow to the economy. With an already struggling GDP, the country cannot afford for the imports from Iran to climb even further. Comparatively, In the last fiscal year, India’s exports to Iran was just one-fourth of its imports. This imbalance is primarily due to oil.

India and Iran are currently working on negotiating a Preferential Trade Agreement in order to bolster trade and relations between the two countries. With Iran’s resources diverted elsewhere, the agreement might take a backseat. The agreement is important for India and Iran both, mostly due to the fact that Iran has export opportunities in a vast number of industries, including paper, essential oils, machinery, automobile and even pharmaceuticals.

Another important industry tied to Iran is the tea industry. India’s traditional tea is valued much more in Iran, with exports of 50 million kg as of last year. While India also supplies to CIS countries, the higher value realization in Iran is more promising. With this conflict, the tea exports to Iran might stop and the industry will surely take a hit with lower prices.

Trade bodies in India haven’t felt any significant impact on trade and economy as of now. However, if the matter continues to remain unresolved and if USA and Iran continue to stay at loggerheads, it is safe to assume that India will need a backup plan, and fast.

India, US, and the World Trade:

The Trump administration believes it is now on a roll-on trade, with deals last week on US-China and the US-Mexico-Canada Agreement (USMCA). Another deal is close to conclusion with India on a modest package of outcomes to solve several high priority market access problems.

The US-India deal, assuming it is completed, will be hard to build on; although build, the two sides must. As they turn to other areas of trade during the course of 2020, including intellectual property rights and digital trade issues, the United States and India might consider their shared interests in countering China’s unfair trading practices, which is likely to remain a defining challenge over the next decade for them and many other countries around the world.

Trump administration consider expanding its bilateral trade cooperation with India to initiate joint efforts on China, which could parallel existing efforts with the EU and Japan and possibly merge with them over time. Might this approach even lead to a new plurilateral negotiation in the World Trade Organization (WTO) that positions it as the most likely venue for tackling Chinese practices over the longer term.

Presumably initial efforts would have to be plurilateral ones in the WTO that would exclude China from direct involvement in shaping future disciplines. Progress in these plurilateral negotiations is no guarantee that China would eventually sign up, just as the vision dating to the Obama administration that a Trans-Pacific Partnership (TPP) might someday lead to China adopting its strong disciplines was always an uncertain one.