NEW DELHI/WASHINGTON (Reuters) - U.S. President Barack Obama faces a range of trade hurdles when he travels to India in early November to unlock a huge untapped commercial potential that would help ballast the rise of Asian giant China.
Despite India’s growing global weight, it is only the United States’ 14th biggest trading partner and obstacles, from outsourcing controversies to the Doha world trade round, have put the brakes on faster integration.
The stakes on trade are high as the United States and India need each other to meet ambitious export targets amid a sluggish U.S. economic recovery, yawning trade deficits with China and fears of global imbalances sparking a standoff.
On the issue of global economic imbalances that have raised fears of currency wars, India and the United States often differ.
Obama may ask Indian Prime Minister Manmohan Singh for help in Washington’s push to prevent countries unilaterally devaluing currency to make exports more competitive in the run-up to the G20 heads of state meeting in Seoul next month.
But at the G20 finance ministers’ meet in South Korea, India and China shot a U.S. proposal to cap current accounts of countries with quantitative targets linked to their GDP.
While ties bloomed during the Bush administration, the two countries have entered what a former Indian envoy to Washington told Reuters was a “sobering phase”.
“It’s only natural that people have high expectations,” Naresh Chandra said, adding “now we are coming from the general to the specific. The problem lies in the detail.”
“When you start concluding agreements then each side wants to have the best of both worlds and that is where the friction starts. So what we are going through is what I would call a sobering phase of managing the details.”
A bilateral trade boom has seen total flows treble to $36.5 billion in goods in the decade to 2009-10, but the United States. slipped from number one to three in India’s trade partners. India lags China, which is the United States’ third biggest trading partner.
The Obama administration wants to double its exports within five years to bolster domestic growth and create jobs. Bilateral trade in goods and services between India and the United States stands at $50 billion, a tenth of America’s trade with China, according to Ron Somers, President of the U.S. India Business Council.
Indo-U.S. business has basked in the warmth of closer ties underscored by a landmark civilian nuclear deal signed in 2008.
But both must work to overcome irritants including fears of growing U.S. protectionism after the financial crisis, demands on both sides for greater market access and differences over Doha.
The United States can push for deals including billion dollar defence contracts. The powerful lobby group the Federation of Indian Chambers of Commerce and Industry (FICCI) has pushed for a relaxation in U.S. export controls to speed up high-tech and defence industry trade.
Such controls prevent, for example, Indian pharmaceutical companies buying U.S. biotechnology to make vaccines on the grounds it could be use to make anthrax weapons, FICCI’s Secretary General Amit Mitra told Reuters.
In the absence of a Doha trade deal, India spread its wings to negotiating trade deals with the likes of the European Union and, in a mark of economic power moving from west to east, the ASEAN bloc of Southeast Asian nations, Japan and Malaysia.
“India, at least the businesses here, have been looking at their own neighbourhood much more,” said trade commentator Biswajit Dhar.
Indian officials and industry groups have protested what Trade Minister Anand Sharma called a “highly discriminatory” hike in visa fees by Washington, seen as aimed at India’s IT industry, as well as perceived non-tariff barriers against Indian goods.
In Washington on Wednesday, reporters peppered White House Deputy National Security Advisor Michael Froman with questions on whether Obama would raise outsourcing.
“I would simply say that a key part of the message is going to be that we want to make sure there’s opportunities for U.S. jobs, U.S. exports,” he said.
Both sides have accused each other of policy foot-dragging, especially over the Doha trade talks. In India there is a sense that New Delhi is much keener to push for a deal than Washington.
The United States complains that India has not accepted the responsibility that comes with its growing economic strength in the world and insists on shielding many sectors.
But while temperatures have risen over protectionism, India may take this in its stride given compulsions in Washington ahead of elections, where Obama’s Democrats can expect a pasting.
Both sides talk up the fact that their trade is relatively balanced, unlike with China.
“We understand the need for politicians to react in certain ways under certain democratic circumstances. But we are hoping that this is only a passing phase,” FICCI’s Mitra told Reuters.
Editing by Alistair Scrutton