WHAT HAPPENED
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Washington assured New Delhi that Indian exporters will receive a comparative tariff advantage over competing countries. This is the first phase of a longer-term bilateral agreement between the two countries.
New Delhi is playing it smart by centering the agreement around preferential access to the American market. It wants to ensure its exporters are not placed at a disadvantage against manufacturing competitors such as Vietnam, Bangladesh and Cambodia.
These negotiations originally began in February this year when Washington agreed to reduce its proposed reciprocal tariff on Indian goods to 18%. And India committed to lowering duties on a range of American industrial and agricultural products. As the drama with China intensifies, Washington would rather focus on cooperating better with India on energy, technology and supply chains.
WHY IT MATTERS
What started as an aggressive plan to extract concessions has turned into a series of bilateral agreements that encourage long-term cooperation between the U.S. and other countries. In India’s case, it’s managed to gain a lot more than just lower tariffs. The clincher is the competitive advantage over other Asian manufacturing economies.
The U.S. is already one of India’s largest export markets, particularly for textiles, pharmaceuticals, engineering goods, gems and jewellery. Preferential access makes Indian manufacturers an alternative to China.
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This move is a win-win for both parties. Indian garment makers directly compete with Bangladesh, Vietnam and Cambodia. So even a relatively small difference in import duties can influence where international retailers place orders and where brands decide to make their garments.
And for Washington, New Delhi is a formidable hedge against China. As American companies diversify supply chains away from China, New Delhi wants to become a major alternative manufacturing hub. A favorable trade agreement reinforces that ambition. Washington gets an ally in an Asian trading partner, and New Delhi gets some flexibility over its energy relationship with Russia.
WHAT’S NEXT
The next step is to wait for all the details to be hashed out, which will conclude the first tranche of the bilateral agreement. The discussions are still underway. The midterms might throw a spanner in the plan, but New Delhi is confident of good outcomes.
Source: finance.yahoo.com
