Let’s suppose you’re a senior officer in an Indian manufacturer producing in, or exporting to, the United States, or in an Indian high-tech firm offering cross-border services to the U.S. Should your company consider diverting deals away from America, toward third countries?
The answer is “yes”.
Now let’s suppose you’re a senior adviser in the Indian Ministry of Commerce or External Affairs, or work directly alongside Prime Minister Narendra Modi. Should you counsel the government to rely less on American political and economic support for the development success it needs to win a second term in office in the April-May 2019 general election?
How could these answers possibly be correct? Hasn’t the Prime Minister visited America five times since his election in 2014?
Didn’t he hug President Donald Trump on his fifth trip, in June 2017?
Yes, he sure did.
Never mind. Lots of people – even leaders in the family of democratic nations – hug each other. Americans hug everyone.
Hugs don’t mean huggers should trust each other. Nowadays, Indian business and government officials shouldn’t trust America.
That’s because of the ‘America First’ policy announced by President Donald Trump in his January 2017 Inaugural Address. That policy has proven itself to mean ‘American Betrayal’ for India, and indeed for America’s friendly trading partners, notably, Canada, the European Union, Japan, and Mexico.
India and the U.S. battle in the World Trade Organization over public stockpiling for food security, export subsidies, and solar panel preferences. Those fights are normal among friendly trading nations. In the multilateral trade context, they get resolved through the WTO adjudicatory system, in which India’s Ujal Singh Bhatia serves as Chair of the seven-member Appellate Body.
Sadly, the America First pattern that has accelerated since January 2017 is anything but normal.
America First trade measures show how little the U.S. values the loyal trade bonds India forged two months after the August 1947 partition of the sub-continent, in October, when it joined the U.S. and 21 other countries, including Canada, most of Western Europe, and the Antipodes to form the General Agreement on Tariffs and Trade.
Here are three data points that form the pattern on which you – the senior Indian business or government official – need to meditate:
- January 2017: The U.S. withdraws from the Trans-Pacific Partnership, which it helped negotiate since 2008, and which it signed in October 2015, after winning approximately 22 major concessions, including far-reaching intellectual property protections, and in which India had a potential interest in joining, but which President Trump castigated “a continuing rape of our country.”
- March 2017: The U.S. starts blocking consensus at the WTO for candidates to fill the three vacant seats on the Appellate Body, asserting that the Body was being judicially activist, consequently putting ‘America Second’ in its rulings and rationales.
- March 2018: The U.S. imposes 25 percent and 10 percent tariffs on all steel and aluminum products, respectively, from nearly all exporters, including India, the E.U., Japan, and its partners in the North American Free Trade Agreement, Canada and Mexico, claiming under Section 232 of the Trade Expansion Act of 1962 their exports impair America’s national security – a claim Canadian Prime Minister Justin Trudeau says not only lacks common sense, but also is an “affront” to the world’s largest trading relationship across the world’s longest shared border, and especially to the “thousands of Canadian soldiers who fought and died alongside their American comrades-in-arms” in Afghanistan. (Emphasis added.)
Republican Senator Ben Sasse of Nebraska tweeted a truism applicable to the entire pattern:
And, if these three data points aren’t enough for you to see the pattern, here’s another one that’s emerging.
Section 232 Auto Tariffs
Once the U.S. completes its Section 232 auto investigation, it will decide whether to slap a 25 percent levy on Indian and other foreign autos and auto parts. From the steel and aluminum case precedents, the outcome is foreseeable. It’s probably a foregone conclusion.
That’s because in announcing this investigation, the U.S. referred not only to its standard eight criteria for seeing whether imports ‘impair’ American ‘national security’, but also tacked on a shocking new change: “Whether and, if so, how the analysis of the above [standard] factors changes when U.S. production by majority U.S.–owned firms is considered separately from U.S. production by majority foreign-owned firms.” (Emphasis added.)
Simply put, it’s not enough to be ‘Made in America’, the producer has to be American, too.
‘Satyagraha’ is a Sanskrit word Indians have lived: ‘satya’ means truth, ‘āgraha’ means obstinacy. Together, they translate as non-violent non-cooperation of the sort Mahatma Gandhi successfully led against the most powerful force that existed at the time, the British Raj. He saw then what senior business and government officials today ought to see: India has a choice.
There are lawful ways for India to ensure America First does not mean India Second.
The other 11 TPP parties went ahead, without the U.S., finalised this free trade agreement (suspending the tailor-made American provisions), and are ratifying and implementing the Comprehensive and Progressive Agreement for Trans-Pacific Partnership that will embrace roughly 14 percent of the world’s economy.
India can go ahead, too, and work with the CPTPP-11, rather than hold out hopes for a bilateral FTA with America.
GATT Article XXIV gives India every right to pursue trade deals in its best interests.
Even if senior officials opt against an innovative FTA policy, it’s vital for them to plug India into cross-border supply chains that maximize benefits from the emerging network of rules of origin. Why invest in America to get duty-free, quota-free access to NAFTA, when Indians can invest in Canada and/or Mexico? Those two NAFTA parties will give India that access, at least until the U.S. withdraws from NAFTA. Regardless of whether it does, Canadian- and Mexican-based Indian producer-exporters will have duty-free, quota-free access to the CPTPP-11 plus the EU. That’s because Canada and Mexico are CPTPP-11 countries, and have new FTAs with the EU.
If your meditation is interrupted with the thought that America First is a disincentive to build factories in America and employ Americans, then let the rest of Senator Sasse’s statement pass through your mind: “this is dumb.”
Also Read: Countering Trump’s Aggression on Trade
The multilateral trading system will become unipolar if the U.S. can asphyxiate the highest and most successful world trade court in human history. Ujal Singh Bhatia’s term is up in December.
If the Appellate Body falls to the minimum number of three needed to hear a case, then otherwise normal Indo-American trade disputes will be resolved by the law of the jungle.
India can work with other WTO members to develop arbitral and/or plurilateral dispute settlement mechanisms to bypass the U.S., so at least their disputes are resolved under the rule of law.
Several countries have already announced retaliatory tariffs totalling $3.45 billion on American merchandise they import. Canada announced tariffs on American products worth $12.8 billion (including a 25 percent tariff on certain steel products, and a 10 percent tariff on aluminum, orange juice, roasted coffee, whiskey, and yoghurt). The E.U. published a 10-page list ranging from bourbon to Harley-Davidsons on which it will impose $1.6 billion in duties, and Japan, likewise, worth $264.3 million.
India took the first step, filing a WTO case against the U.S. arguing the Section 232 action violates a range of GATT-WTO rules.
Change ‘could’ to ‘would’, and India will launch a modern-day Salt March. Let Indian history inspire this second step. In April 1930, Gandhi led the 240-mile march to protest Britain’s 1882 Salt Act, which barred Indians from manufacturing and selling salt, compelling them to buy this dietary staple from the British, who held a salt monopoly and levied a stiff salt tax that especially hurt India’s poor.
Retaliatory tariffs are lawful civil disobedience built into Article 8:3 of the WTO Agreement on Safeguards. If a WTO member wrongfully imposes a safeguard, then adversely affected members can suspend “substantially equivalent concessions” against that Member.
Indian tariffs will protest a contemporary injustice as the Salt March protested a colonial one.
With that declaration, India’s can choose its script: another Salt March-like suspension of substantially equivalent concessions.
No More Hugs for Now
If India wants to ensure America First need not mean India Second, then India needs to separate from the embrace with America.
The British Raj was the last great power to tell India who it could trade with, what it could trade, and what its terms of trade would be. America under the Trump Raj is re-visiting history, that it must pay a 25 percent tariff on steel exports, that it must pay a 10 percent tariff on aluminum exports, and that it might soon have to pay a 25 percent tariff on auto and auto-parts exports.
India emerged from the British Raj with a Middle Temple lawyer whom Winston Churchill derided in 1931 as a “half-naked fakir” to lead the Non-Aligned Movement under its founding Prime Minister whom American Secretary of State Dean Acheson derided in 1949 as “one of the most difficult men with whom I have ever had to deal.”
Yet, Gandhi in the Quit India campaign, and Nehru in the NAM, spearheaded conferences that changed the world.
There is nothing to stop India from re-visiting that history by convening ‘International Trade Round Tables’ to launch pro-development initiatives, address overcapacity in the steel, aluminum, and car industries, discuss linkages to nuclear security issues, and play the ‘China card’ to address Chinese IP theft. Nothing, except India.
Raj Bhala is the inaugural Brenneisen Distinguished Professor, The University of Kansas, School of Law, and Senior Advisor to Dentons U.S. LLP. The views expressed here are his and do not necessarily represent the views of the State of Kansas or University, or Dentons or any of its clients, and do not constitute legal advice.
The views expressed here are those of the author’s and do not necessarily represent the views of BloombergQuint or its editorial team.