External Affairs Minister S Jaishankar faces trial by fire in dealing with Donald Trump's curveball on preferential trade status

Throughout his career as a top diplomat in key postings around the world, and later as foreign secretary of India, Subramanyam Jaishankar carved a niche as a tough negotiator with silken skills. Those skills will be put to test quite early on in his new innings as India’s external affairs minister in the Narendra Modi 2.0 Cabinet. And he will face trial by fire in dealing with a petulant United States president whose fixation on trade issues is set to become increasingly fiercer and more transactional.

On Friday, Donald Trump announced that he will strip India of the preferential trade status that it enjoyed under the Generalised System of Preferences (GSP) — a 30-year-old programme that allowed India to export around 2,000 products, including auto components and textile material worth $6 billion duty-free to the United States, conditional on India meeting certain parameters.

Trump had threatened to withdraw India’s status as a member of the United States' largest and oldest trade preference system because, according to him, New Delhi indulges in unfair trade practices by restricting access to its market for United States' companies in numerous sectors and has adopted "hostile" policies such as regulation on data localisation for e-commerce firms, price control on dairy products, medical devices, telecommunication equipment, etc.

 External Affairs Minister S Jaishankar faces trial by fire in dealing with Donald Trumps curveball on preferential trade status

File image of Narendra Modi and S Jaishankar. PTI

Trump, whose political plank rests on a grievance narrative in which the United States is being sucked dry by numerous parasites because it is not “strong-willed enough”, has called India a “tariff king” and launched a review of India’s GSP status in April last year. The 60-day notice ended last May.

In a White House notification issued on 31 May, Trump declared that India will be removed from the list of beneficiary developing countries under the Trade Act of 1974 from 5 June, 2019, because he has “determined that India has not assured the United States that India will provide equitable and reasonable access to its markets. Accordingly, it is appropriate to terminate India's designation as a beneficiary developing country.”

The GSP imbroglio, though not an end-of-the-world situation for India, remains a marker of the larger issues that plague bilateral trade ties. Though India was the largest beneficiary of the GSP pact in 2017 with $5.7 billion in imports to the US, in real terms, the move is not expected to dent total Indian exports to the United States which decreased to Rs 229.46 billion in January 2019 from Rs 236.56 billion in December 2016. Annually, India’s gains from the GSP programme amount to around $190 million.

Nevertheless, the development adds to the downward trajectory in US-India trade ties that have been subject to major irritants in recent years, and the fear in policy and administrative circles in both nations is that annoyance over trade and Trump’s demand for reciprocity may bleed over into the robust strategic partnership amid hopes that co-operation on security and defence will maintain its upward trajectory.

As of now, Washington and New Delhi have both been trying to tiptoe around the trust issues that trade ties suffer from to avoid precisely the eventuality that everyone fears.

India, for instance, has called Trump’s declaration to withdraw preferential trade status “unfortunate” and has reiterated that its policies shall always be guided by national interest, as is the case with the United States and other nations. It has stated, “We have significant development imperatives and concerns and our people also aspire for better standards of living. This will remain the guiding factor in the government’s approach,” it said. Significantly, the statement also added that it will resolve the “ongoing issues” and build on its “strong ties” with the United States. “We are confident that the two nations will continue to work together intensively for further growing these ties in a mutually beneficial manner,” it said.

This attempt to compartmentalise trade ties and the strategic partnership into separate boxes is mutual. A day after Trump pulled the trigger on GSP keeping India in the crosshairs, the United States Department of Defense came out with its Indo-Pacific Strategy Report which reinforces India’s role in the country's Indo-Pacific policy. The document mentions the Modi government’s "Act East" policy as complementary to the larger shared goal of a free and open Indo-Pacific region.

It states, “The United States and India share a common outlook on the Indo-Pacific. Both countries recognise the importance of the Indo-Pacific to global trade and commerce and acknowledge that developments in this region will shape the larger trajectory of the rules-based international order. India, through its 'Act East' policy, continues to make significant security, economic, and development investments to secure the vision of a free and open Indo-Pacific region.”

The issue, therefore, is two-fold. It is important to ease the United States-India economic relationship that has already been subject to differences that have proved intractable, and also to prevent newer irritants from piling up on older ones. These irritants have resisted concerted efforts from both sides including repeated trade talks to find a mutually acceptable solution. In absence of a solution, or even a tangible movement towards a solution, the Trump administration has taken a grim view of the trade deficit and the United States president’s personal obsession over tariffs has further complicated the situation.

The second issue is that while close strategic partnership has so far been able to balance out the trade irritants and has even led to net positive bilateral ties, there is a palpable fear that time is running out and before long, the intractable differences over trade will cast their shadow on overall bilateral ties. It is worth noting that even in the arena of strategic partnership and defence co-operation, India is heading towards United States secondary sanctions if it remains committed to buying the Russian S-400 Triumf missile shield.

The United States president can, theoretically, provide India with relief from CAATSA sanctions even if the $5 billion deal goes through, but at no stage has the United States promised India an automatic waiver and unlike in the decision around GSP, this position remains bipartisan.

“We have serious concerns about the S-400, and we would not encourage any country to rely on waiver status for the purchase of any prohibited Russian items, especially the S-400,” a senior Trump administration official was quoted, as saying by The Hindu.

It also must be considered that even if in the unlikely event of a CAATSA waiver that allows New Delhi to purchase the Russian missile defence system, the entire strategic partnership with the United States will come under strain because of the larger dynamic around Russia’s great power rivalry with the United States and on a micro scale, lack of interoperability of United States weapons systems and platform with Russian equipment.

To fix this puzzle which has the potential of derailing bilateral ties, Jaishankar will have to work closely with his colleague Piyush Goyal in the commerce ministry and the prime minister himself, but the heavy lifting to fix the broken United States-India trade ties will probably be left to him. And it makes good sense too.

Jaishankar, who possesses and retains the unbureaucratic trait of thinking out of the box and challenging accepted notions, had famously called for India not to “demonise Trump” but to “analyse” him.

During a seminar in Mumbai in 2017, the then foreign secretary had stressed on the need to be patient with Trump. “Don’t demonise Trump, analyse Trump… India may not be part of the problem but India will be affected by Trump’s policies,” he had said.

As the foreign minister, faced with a tricky negotiating posture with the United States — one whose outcome is likely to have a far-reaching impact on overall bilateral ties — Jaishankar must now not only dig deep into his bag of experience and expertise but also involve other government departments in a teamwork to crack the code. One thing is certain. There is certainly none better than him to solve the seemingly intractable issues.

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Updated Date: Jun 03, 2019 16:26:21 IST