A Round Table Discussion comprising a Group of Experts on the United States was hosted at the Vivekananda International Foundation. The focus of the RTD was on US President Donald Trump’s forthcoming visit to India and what India should expect out of this meeting keeping in mind our current bilateral relations in trade, economy and defence. The discussion started off by assessing the significance of bilateral meetings between the Indian Prime Minister and the US President and the significance of President Trump’s visit at an important juncture with President Trump being acquitted of impeachment charges by the Senate and a booming US economy. The bilateral visit is seen to be positioning India prominently on the global scene and sends out signals of a strong India-US partnership that will be a key driver in our policies in the neighbourhood and beyond.

The main focus of the meeting was on the two main components of India-US relations: defence and trade. The highlights of the discussion are:

Defence

Developments in bilateral defence trade under the Defence Technology and Trade Initiative (DTTI), an initiative between India and the US, that aims to expedite the scope of cooperation on defence technology and explore new avenues for co-development and co-production of emerging defence technologies were discussed.

The signing of the key foundational agreements like the agreement on the Industrial Security Annex (ISA) that was signed by the two countries in the 2+2 ministerial dialogue on the 19th of December 2019 and the COMCASA in 2018, should give further impetus to defence trade and cooperation.

The ISA will provide a framework for the exchange and protection of classified military information between the defence industries of India and the USA. India has evolved a strong and robust security infrastructure for the protection of classified information and the ISA will help bring conformity to the information security practices of the 2 countries.

This should also give an impetus to industry-industry cooperation that has mostly been a one way ticket even under the Joint ventures. With the agreement on ISA, classified work that was being handled exclusively in the US will now hopefully move to the Indian defence industry and will also enable a better division and execution of work in the mutual projects of defence cooperation.

The DTTI has been in place since 2012 but was mainly being driven by government-government exchanges while industry cooperation was limited due to lack of foundational agreements. The signing of the Standard Operating Procedure (SOP) would provide support to the DTTI framework and would enable better identification of projects, breakdown of work and how to progress through various steps of the project while also ensuring integration of the production and procurement systems of the 2 countries. The aim is to co-develop projects while leveraging strengths and niche area expertise from both sides and to also explore avenues of exporting to third party countries.

Another positive step in the direction of enhancing bilateral defence cooperation has been the setting up of the Defence Industrial Advisory Committee (DIAC) under the Ministry of Defence in India.

The DIAC would be a joint industrial body involving institutional arrangements between industries from both countries. The platform provided by the DIAC would provide a space to the industry to jointly identify projects, raise concerns, hold negotiations and seek to mitigate the problems under the umbrella of the DTTI. India and the USA would each have one point of contact and 20 members to facilitate exchange between the governments and industries under the ambit of bilateral defence trade.

On the defence production front, industry cooperation must be enhanced. An important development here has been the launch of Innovations for Defence Excellence (iDEX), an initiative by the Department of Defence Production in 2018 that primarily aims at the creation of an ecosystem to engage start-ups, MSMEs, individual innovators and R&D institutes and academies within the existing defence production framework to foster innovation and technology.

iDEX is funded and managed by the Defence Innovation Organisation (DIO), a not for profit company under the Companies Act of 2013 with HAL and BEL as its founding members. The iDEX functions as the executive arm of the DIO and is a hybrid between the Defence Innovation Unit (DIU) and DARPA of the US DoD and provides grants to start-ups through a fund and also employs technology watch on emerging work of players in the defence sector.

An MOU has been signed between the DIU of the United States Department of Defense and iDEX to integrate startups on both sides in co-developing and co-manufacturing in the defence and aerospace sector. It was noted that India has the 3rd largest start up ecosystem in the world and this should be leveraged to advance the Indian defence industry. At present, Indian start-ups are engaged in some projects with the United States Air Force (USAF) research laboratory on emerging technologies in military aviation.

Similar efforts should be made to integrate the cutting edge work being done by start-ups in the aerospace sector of India. With the foundational agreements in place and the setting up of the framework, the next step should be in the direction of joint development and joint production. There is a requirement for real transfer of technology and increased collaboration between the defence design labs of the two countries. The US must play a pivotal role in facilitating this and enhancing the Indian capability of manufacturing locally.

Several discussants raised questions about what future warfare will look like and how India should prepare. Some participants stated that in the future wars may not involve conventional technologies but rather be undertaken using technologies such as Artificial Intelligence (A.I.). The GoI must prioritise this issue. The A.I. is a domain where India has developed significant capabilities and this should be encouraged.

A NASSCOM study has highlighted that India has roughly one million professionals working on A.I. and big data. Highlighting India’s technological strengths was the focus of the 2020 DefExpo – which was titled ‘Digital Transformation of Defence’. Furthermore, GoI is also looking at developing UAV and drone capabilities for warfare. Given the fact that developing weapons systems and purchasing/co-producing major defence products has a gestation period of at least five years, the GoI must be cognizant of investing in technologies and products that will be utilized for the future.

Given our budgetary constraints, the focus of the Indian industry, should be on low end technology that would contribute towards capacity building and enhance the engagement capabilities in the neighbourhood, which is where we concentrate our efforts. In this regard the focus of the Indian industry and the Indian Government should be technologies in Quantum computing, AI, Synthetic biology, adaptive communication and space materials such as re-entry vehicle sheets, reaction engines and plasma rockets.

It was discussed that while India has individual competencies but no structure to amalgamate these practices, attention must be paid to Human resources development since we import foreign defence products but don’t simultaneously develop our human resources to interface with the new technology. This is especially true for emerging areas in defence such as space and traditional areas of management such as acquisition and technology integration. Cooperation should be extended to joint training in US space institutions to exploit current and future space technologies which can be procured or produced jointly.

R&D therefore becomes a key sector which needs integration with the defence requirements and not be pursued independently by different government bodies. It was suggested that a suitable number of individuals from the armed forces and industry be sent abroad to undertake research in world class institutions. The tendency to work in silos must be discarded. Defence is a technology intensive industry and questions on the Intellectual Property Rights (IPR) must get due importance within the framework of bilateral defence trade and joint production.

India must prioritise its requirements and that procurement assurance would determine if foreign players like Lockheed Martin would set up manufacturing in India or the local industry would produce the defence products. Obtaining permission and grants should be streamlined by liberalising and digitising the platform which gives an impetus to defence trade.

Trade and Economic relations:

Trade has remained a tricky and contentious issue in India-US relations. The much anticipated mini trade deal during President Trump’s forthcoming visit is now off the agenda but US pressure on this is not likely to abate. The two sides have undertaken multiple rounds of extensive discussion over the last few months, resulting in considerable progress. The volume of bilateral trade has grown, with the trade deficit narrowing down by about $6 Billion in the last two years.

Long-standing issues such as non-tariff barriers (NTBs) on import of American dairy products of ruminant origin over religious and cultural sensitivity are now being resolved due to sustained efforts from both sides. The talks have now expanded in scope, from an initial list of 8 items to 28 items, out of which 25 issues have been agreed upon by India. The remaining issues mainly concern the agriculture and related sectors.

The US is now seeking larger market-access for more of its agricultural and dairy products. This poses a significant challenge for India as it cannot offer discriminatory tariffs to the United States. Any concession offered to products from the United States would be on an MFN basis and will have to be applied across the board, potentially hurting the already distressed domestic Indian agriculture and dairy sectors hugely. [According to estimates, for every $1 concession to the U.S., India will have to give approximately concessions worth $7-$8 to other countries such as New Zealand, Australia etc.)

The agriculture sector in India contributes almost 18% of the entire GDP with an enormous chunk of the Indian population (more than 230 million people) dependent on it for their livelihood. The sector comprises mainly small-scale marginal farmers who are already severely distressed, making the issue extremely sensitive for the country. The Indian side has limited room to accommodate American demands in the dairy and agriculture sector due to the associated political impact. This is something that PM Modi should discuss personally with President Trump rather than leave this matter to US officials to brief their President.

2020 being an election year in the United States, the American trade negotiations currently are geared towards domestic political messaging, focussing especially on scoring concessions for its farm and dairy sector that forms a major electorate in key swing states. We need to convey that the US farm sector is relatively small and contributes just about 2% of the US GDP and supports approximately 32 million people compared to the Indian agriculture sector.

The American side is sending mixed signals on trade issues and shifting the goal posts. The US had, earlier this month, announced the exclusion of India from is developing countries’ list, enabling them to impose anti-dumping and countervailing duties on the latter over farm subsidies. India with a per capita GDP of about $2,000 is still in the developing stage of its growth trajectory, and significantly lags behind the United States (with a per capita GDP of about $63,000). So to now label India as a developed country is not logical.

It must be highlighted that India’s farm subsidies are well below the WTO’s cap, and are miniscule compared to those given out by the U.S. The U.S. labels Indian farm-subsidies like the minimum support price (MSP) as market-distortionary, while structuring its own farm support subsidies - amounting to a hefty $44 billion annually - under the ‘green-box’ category. It needs to be taken into account that as a developing country, India’s ability to finance across-the-board ‘green-box’ subsidies is limited. Its subsidies and tariffs are aimed at prioritizing its limited funds to aid its distressed marginal farmer. The United States needs to be sensitive to this disparity, and acknowledge the significant progress that India is making in lowering its tariffs and re-working its subsidy regime towards WTO –compliant levels through the years.

Additionally, in January 2020, the US abruptly decided to expand the list of duties imposed on derivative steel and aluminium goods. India’s exports to the US in this category grew by 172% in 2019 alone. The fresh tariffs imposed could potentially hurt Indian exports worth $37 million. Further, India’s status as a GSP beneficiary, which had been revoked in June 2019, has still not been restored.

Going forward, India needs to strongly negotiate for first the restoration of the developing country status, and subsequently for the GSP beneficiary status. While the economic impact of this has been modest, restoring the preferential concessions would lay the foundation for stronger ties between the two.

Another issue of contention has been the imports of medical devices. The United States has raised concerns over price controls on medical devices such as stents and knee caps etc. announced by the Indian Government under its policy of enabling access to affordable healthcare for its citizens. India has agreed on providing specific concessions such as incentives for future innovations etc. to American companies in this regard. However, both sides need to work out the specifications and details of these carve-outs.

Uncertainty regarding immigration policies, especially H1-B visas, continues to be a significant concern for the Indian companies operating in the U.S. India needs to take forward the discussions over the totalization agreement and ensure that social security benefits for Indian workers in the US figures prominently in future negotiations.

Further, issues pertaining to data security and protection continue to be an issue of contention between the two sides. The United States has placed India on its digital trade restrictions watch-list, and has been pressurising India demanding provisions much beyond WTO requirements. India is still in the process of formalizing its domestic policy over data issues, and any trade negotiations on the topic cannot be undertaken until a bill is passed by the Parliament. The Personal Data Protection Bill had been introduced in the Lok Sabha in December 2019, and is currently under review of the Standing Committee.

Both sides need to prioritize resolution of data related issues through consultations under the India-US ICT dialogue. On issues relating to IPR, the main concerns rally around policy uncertainties at the state level. The two countries need to revive the dialogue process through the Trade Policy Forum at the earliest for addressing such concerns.

The significant Energy and Defence acquisition deals to be formalised would form the highlight of the forthcoming visit. India should leverage its strong defence ties to strengthen and build upon its trade relationship with the United States. For the time being, a limited agreement on immediate issues can be expected during the visit. It would, however, be in India’s interest to follow a structured, phase-based approach to better cushion its domestic farmers and producers, and hold out until after the elections for undertaking negotiations towards a comprehensive bilateral trade deal.

The visit should however be looked as an opportunity for pursuing broader strategic and political objectives for both countries. Considering the geopolitical challenges to their strategic interests in the region, both India and U.S should focus on areas of strategic convergence and this should be at the centre of the discussions at the highest levels. It is time that India and the United States should move beyond trade issues, and build upon mutual strengths to solidify the larger defence and strategic partnership.