Donald Trump had a highly “productive discussion” with Prime Minister Narendra Modi on such issues as Iran, 5G and national security during their meeting in Osaka on the sidelines of the G20 summit, the first since Mr Modi became Prime Minister for the second time.
The US President’s daughter and generally perceived to be the top adviser, Ivanka Trump, described India as a “critical” trading and security partner and ally of America. “We discussed ways to leverage the power of technology, improve defence and security ties as well as issues relating to trade,” the Prime Minister said on Twitter.
Soon after the meeting with President Trump, the Prime Minister held a meeting with leaders of Brazil, Russia, China and South Africa (BRICS). They discussed the need to strengthening the World Trade Organisation (WTO), fight protectionism, counter terrorism, and ensure energy security . India had raised tariffs on 28 items, including almond, pulses and walnut, exported from the US in retaliation to America’s withdrawal of preferential access for Indian products.
The Trump administration wants Mr Modi to lower the trade barriers and accept “fair and reciprocal” trade. In response to Indian tariff concessions and removal of some non-tariff barriers, the US for its part could redesignate India as a beneficiary of its Generalized System of Preferences (GSP) programme. Trump’s decisions on May 31 to terminate GSP for India, the programme’s largest beneficiary, affected trade worth $ 6.3 billion, or 12 per cent of Indian exports to the US in 2018.
While Indian officials at the time played down the economic impact of the decision, the redesignation of GSP assumes considerable importance at a time when the Indian economy is struggling. The Modi-Trump meeting assumes significance in the wake of a recent tariff war between the US and India; a day before the meeting, Trump had called for withdrawal of high import duties imposed by India. The major issue pertains to a hike in duties on steel and aluminium products by the US in 2018.
After that, the government on June 21, 2018, had imposed these duties in retaliation. As India is one of the major exporters of these items to the US, the move had a revenue implication of about $240 million on domestic steel and aluminium products. Trump has also criticised India’s high import tariff on the iconic Harley-Davidson motorcycles as “unacceptable” though acknowledging that his “good friend” Prime Minister Modi has reduced it from 100 per cent to 50 per cent.
However, Trump called it “unfair” and threatened to increase the tariff on import of Indian bikes to the US. Mr Modi and the Japanese Prime Minister, Shinzo Abe, had a meeting with the President Trump. They discussed 5G technologies, with the focus on its security implications for India, Japan and America. As regards 5G, the Prime Minister highlighted the technical and business opportunities that this new area provides for cooperation between India and the US.
The Prime Minister mentioned that India would have a billion users of the 5G technologies and by that token, this country is the second largest market in the world. The two leaders discussed the issue of 5G at a time when Chinese telecom giant Huawei has urged India to make an “informed and independent decision” on permitting its 5G trials in the country. The Trump administration is exerting pressure on other countries, including India, to restrict the operations of Huawei and has banned American companies buying its products over security concerns.
The US reimposed sanctions on Iran last November after pulling out of a 2015 nuclear accord between Tehran and six world powers. To reduce Iran’s crude oil export to zero, Washington terminated on May 2 the waivers that had allowed the top buyers of Iranian oil, including India, to continue their imports for six months. India, complying with the U.S. sanctions, has ended all imports of oil from Iran.
The two leaders met shortly after the Japan-America-India trilateral meeting during which Mr. Modi highlighted “the importance India attaches” to the grouping. On the issue of Iran, Mr Modi outlined India’s energy concerns as well its concerns regarding peace and stability in the Persian Gulf region. Both sides agreed that they would remain in touch on the issue of Iran and will continue to have discussions on how to ensure regional peace and stability.
The meeting was held during heightened tensions between Iran and the US, which has accused Tehran of being behind a series of operations against oil tankers in the highly sensitive Gulf waters. The US has also deployed its warships and additional soldiers to the region. Despite a contentious run-up and forbidding challenges, Indo-US relations, post the G-20 meeting, can claim a decidedly positive trajectory.
The two leaders have pledged to work despite policy differences; they have directed their subordinates to focus on four primary issues ~ bilateral trade friction; India’s defence ties with Russia, by implication New Delhi’s plans to purchase an S-400 missile defence system; India’s oil imports from Iran; and 5G technology, more precisely India’s stance towards buying telecom equipment from China’s Huawei. To translate this ambitious negotiating mandate into agreements 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. 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 negotiate a series of one-off, unrelated agreements.
Earlier bilateral meetings ~ particularly the US Secretary of State, Mike Pompeo’s in-depth discussions in New Delhi ~ have usefully conveyed negotiating red lines, they have also provided an idea of where both countries can demonstrate the flexibility essential to moving the relationship forward. India’s negotiating red line is to secure a US waiver that will permit it to buy the Russian S- 400 Triumf missile defence system without triggering stiff American sanctions under the Countering America’s Adversaries Through Sanctions Act (CAATSA) targeted at Russia.
Since the Trump administration appears determined to make good on its threat to sanction NATO ally Turkey for proceeding with a similar transaction, India may get a waiver as the US Congress has agreed to give India a NATO member status. The minister of external affairs S Jaishankar 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) defence supplier.
More importantly, 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.
(The writer is author of World Trade Organisation: Implications for Indian Economy (Pearson Education) and is retired senior professor of International Trade. He may be reached at [email protected])