An Indian flag flies in front of billboards with portraits of Indian Prime Minister Narendra Modi and US President Donald Trump in Ahmedabad, India, on February 23, 2020.
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A trade deal between India and the US remains unsigned after months of negotiations, with the war on Iran and a US court ruling against tariffs creating room for new negotiations – a delay experts warn could be costly.
The first phase of the deal was expected to be finalized by mid-March, but negotiations are still ongoing, leading to further delays.
“[The] The Iran conflict is draining communications bandwidth from energy security and national crisis management,” said Reema Bhattacharya, head of Asia research at Verisk Maplecroft, adding that this could stall trade negotiations as a result.
The Indian trade delegation ended its visit to the US on Thursday, but the talks did not lead to a full announcement.
“Both sides are working towards reaching a balanced, mutually beneficial and forward-looking trade agreement, taking into account each other’s concerns and priorities,” a spokesperson for India’s Ministry of External Affairs said that day.
The delay in finalizing the deal could be costly for India as the US administration will close the investigation under Section 301 of the Trade Act of 1974 in June, a move that will shift power towards the US, experts say.
In March, the US administration launched a trade investigation in China, India, the European Union, and more than a dozen other economies, in an attempt to restore President Donald Trump’s tariffs, which were ruled illegal by the Supreme Court on February 20.
“It is important that the agreement [between India and the U.S.] closed at the end of May,” Mark Linscott, former assistant US trade representative and senior adviser at the US-India Strategic Partnership Forum, told CNBC in an email.
India could face the risk of higher tariffs than those agreed in February if it fails to sign the deal before the end of the Section 301 investigation, he said.
Room for new deals
In August last year, the US hit India with the highest tariffs, 50%. Part of this amount was punitive, aimed at curbing Russian oil imports from India.
In early February, the US reduced those tariffs to 18% so that New Delhi reduced duties on US goods to zero, replaced Russian oil with supplies from the US and Venezuela, and bought US goods worth 500 billion.
Both sides called the deal a success and were looking forward to signing the deal by mid-March, at least for the first phase of the agreement. But a few weeks later, the US Supreme Court dismissed Trump’s tariffs as “unlawful,” after which the administration imposed a 10% tariff on all of its trading partners.
India will be paying a higher price than other countries if it agrees to the terms of the agreement agreed with Washington. Speaking on the sidelines of the India-Korea Business Forum on Monday, Piyush Goyal, India’s commerce minister, said India’s trade negotiators were negotiating for special access to US markets.
India does not have unlimited room to spend, Harsh Pant, vice president for studies and foreign policy at the New Delhi-based think tank the Observer Research Foundation, told CNBC. “A strong negotiating position can be fruitful,” but a long delay raises the risk of losing strategic advantage, he said.
India needs to get the first benefit before the Section 301 probe is concluded, he added.
The US, on the other hand, has been pressuring India to buy more American energy, as New Delhi scrambles to secure electricity amid tensions in the Middle East.
For India, cooperation with the US in energy has limited benefits. High transportation costs, inconsistent refinery infrastructure, and long delivery times are among the main obstacles hindering the US’s heavy reliance on energy.
On the other hand, New Delhi’s reliance on Russian crude rose sharply in March to nearly 50% of its oil imports.
“I don’t see the return of the 25 percent penalty tax associated with the purchase of Russian oil,” Linscott said, but added that “the focus needs to be on finalizing a trade agreement.”
The only success for the US and India will be to sign an interim agreement soon, he said.
