Context

When Prime Minister Narendra Modi welcomes U.S. President Donald Trump to India this month the two leaders are expected to sign a first-ever trade agreement.

What will be on the agenda of the trade deal?

• GSP issues: The restoration of India’s Generalised System of Preferences benefits,
• Pricing of medical devices.
• And agriculture trade are all important.
• Incremental outcomes: If the two sides continue efforts to achieve incremental outcomes, the start of negotiations on a comprehensive free trade agreement (FTA) could even be a credible scenario. Presently, this is not the case.

What could be the incremental outcomes?

• The most obvious candidates are-
  • Intellectual property rights (IPR).
  • IPR has historically been an area of contention between the two, but discussions on IPR have progressed well in recent years.
  • Digital trade.
  • Both are grappling with the appropriate scope and approach for regulating electronic commerce issues in this digital age.
  • Ideally, there should be room to seriously consider better ways to encourage skilled professionals to work in the other’s economy.
• Progress on the investment

There are already some shared interests in the area of investment.

• For example, India invests in the U.S. and continues to seek U.S. investment in India.
• FDI issue: Foreign direct investment (FDI), this is an important moment to do more to encourage it than simply welcoming it.
• Need to negotiate o investment: Ideally, the two sides should move ahead to negotiate an agreement on investment matters that can provide greater transparency, predictability, and regulatory certainty to investors from the other country.
• Negotiation on FDI off the table: It appears that the traditional approach through which countries pursue commitments on FDI, bilateral investment treaties, or ‘BITs’ (bilateral investment treaties) is off the table.
• The Trump administration has put a hold on negotiating additional BITs and appears to be suspicious of how well they balance U.S. interests.
• The Indian government is similarly sceptical of BITs, having cancelled all existing ones soon after it came into office.

Need for the new approach on the investment issues

• Until they resume their work on BITs, the two sides may find common ground in devising a new approach to investment issue.
• What the new approach involve?
• Taking cues from their respective FTAs: A starting point should be to review what they have done in their recent FTAs.
• Abandonment of investor-state dispute settlement: The recently concluded U.S.-Mexico-Canada Agreement contains a novel approach on investment notably its abandonment of investor-state dispute settlement with respect to the U.S. and Canada.
  • Similarly, the Regional Comprehensive Economic Partnership, which India had been negotiating with ASEAN, Australia, China, Japan, Korea, and New Zealand, does not include investor-state dispute settlement.
  • While India chose not to join the Regional Comprehensive Economic Partnership when it was concluded at the end of last year, it appears to have been on board with the FTA’s investment provisions.
• Where the agreement focus as of now? For now, however, both countries should focus on what is doable. A U.S.-India investment agreement could focus on-
  • Fair treatment for investors from the other country.
  • Regulatory transparency and predictability.
  • And approaches for resolving concerns short of investor-state dispute settlements.
• At a later stage: At a later stage-
  • Most likely when the two are prepared to negotiate a more comprehensive bilateral FTA, they can go further on investment matters.

Conclusion

A new, hybrid approach on investment would be a substantial step in the right direction. It will be critical to sustaining momentum coming out of a first trade deal when the two leaders meet in Delhi. If India and the U.S. fail this test, the trade relationship is more likely to languish than blossom.

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