As ministers of the World Trade Organization (WTO) were meeting last week, the lure of India’s massive market again came to the forefront as an appetizing venture. Right now, India is the United States’ 18th largest trading partner with $43.4 billion in bilateral goods trade in 2008. Though trade has increased over the last decade, the U.S. currently finds itself running an $8 billion goods trade deficit with the Asian powerhouse. A deficit that is 23.7% more than what it was in 2007.
The relationship between the United States and India has expanded exponentially since the signing of the Uruguay Round in 1995. Since 1994, U.S. exports to India have increased 671%, though only account for just 1.4% of the United States’ export portfolio. During that same time frame, U.S. imports of Indian goods has risen 385%. In 2007, goods and services trade with India topped $61 billion, with exports making up $27 billion of that total. U.S. foreign direct investment (FDI) in India has also continued to tick upwards. In 2007, U.S. FDI was at $13.6 billion, a 47.8% increase over 2006.
Right now is a critical time for India. Prime Minister Manmoham Singh is at the reigns of the second most populous country in the world and it is facing a devastating drought. The situation has strained the economy and growth for the year has been adjusted from 7.5% to 6%. Even more dire is that food prices are rapidly climbing as the price for sugar has already hit a 30-year high and other food items aren’t that far behind. The government has had to start cracking down on individuals that have begun to horde important commodities.
Last week, the United States’ Trade Representative Ron Kirk was in New Delhi trying to forge ahead on the Doha Development Agenda, which has been in a near-constant stall since 2001. “I came to New Delhi with the message that the United States is ready to do the real work it will take to move the Doha Round toward a balanced and ambitious conclusion,” stated Ambassador Kirk. “We came here in the hopes that our trading partners are ready to do the same.”
The United States and India stand as two key opponents in the talks.
“India is a lot more flexible right now than it has been in the past,” said Dr. Chris Kuehl, managing director, Armada Corporate Intelligence and NACM economic analyst. “Part of the problem previously had been that the government of Manmoham Singh always had to be cognizant of the fact that it had a hard-left part of its coalition that was prepared to defect if there were any concessions made in terms of trade.” But after this summer’s elections, Singh’s party came across much stronger and is no longer dependent on that left-wing coalition, so the government has been more aggressive exploring trade.
Currently, the United States’ top export items to India include fertilizers, which amounted to $2.8 billion last year, followed by precious stones and machinery, approximately another $2.5 billion a piece. In the Doha Round talks last year, an inability to come to terms on agriculture import rules was what crumbled negotiations. The U.S. agricultural sector would love to have access to India’s markets, which is especially poignant now since India might not even be able to produce enough food this year to sustain its own population because of the drought and light monsoon season.
India wants trade access to the manufacturing sector on the East Coast. So, there will have to be concessions from both sides of the table. The U.S.’ ability to reach an accord will also be reliant on how much political capital President Barack Obama has left. Will it all be used up in the efforts to get a healthcare plan passed, or will he still be able to approach his party and ask that they back him on a trade agreement.
“It’s about a 50-50 shot that the U.S. will do something,” said Kuehl. “But we’re closer than Doha has been in ten years. This is the trade deal that will not die. It has been declared a corpse so many times you think it would have rotted by now. But, it’s still there.”
Trade ministers say they are committed to reaching a deal in Doha Development Round in 2010.
Matthew Carr, NACM staff writer. Follow us on Twitter @NACM_National