Union Commerce Minister Piyush Goyal on Thursday said that India and the US are “very close” to an interim trade deal, stressing that free trade agreements are “about comparative advantage”.
The minister was speaking during an event in London, where he was asked about the progress of the talks between New Delhi and Washington when he explained the principle of competitive advantage. “Until the framework for obtaining a competitive advantage is finalized, we cannot bring an American agreement into effect,” Goyal said.
He was responding to a pointed question at the India Global Forum in London on the progress of the Indo-US FTA talks, following his two-day meeting with the US Trade Representative in New Delhi on June 23-24. “We are very close,” he said, also referring to the recent statement by the US ambassador that the interim free trade agreement is 99% complete.
Explaining the business logic behind a mutually beneficial trade deal, Goyal said: “A free trade agreement is fundamentally about gaining a comparative advantage over your competitors for market access.”
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He explained that both New Delhi and Washington agreed on a framework for an interim deal on February 6, but before it could be activated after legal scrutiny, the US Supreme Court invalidated the basis of the deal – its tariff structure – on February 20. He was referring to reciprocal tariffs imposed by the United States on various countries under the International Emergency Economic Powers Act (IEEPA), which the court invalidated.
“There were tariffs under IEEPA, when we finalized the deal,” Goyal said, referring to the situation before the framework agreement, when Indian goods attracted a steep 50% tariff in the US market.
India negotiated an agreement to reduce that tariff to 18%, with the entire arrangement focusing on competitive advantage that gave Indian exporters an advantage while imposing higher tariffs on competing exporting countries.
“So, we were lower than all our neighboring countries, and all the ASEAN countries, except Singapore,” he said. “That’s why the deal was attractive.”
With the Supreme Court striking down this tariff structure, and the current 10% tariff set to expire on July 24, “obviously we have to have some grounds to be able to go into effect,” Goyal said, referring to the February 6 framework jointly announced by India and the US (February 7, India time).
He said India wants to ensure a competitive advantage over rivals at a similar stage of development with similar cost structures, including Vietnam, Thailand, Philippines, Indonesia, Malaysia, China, Bangladesh and Sri Lanka. “So these are widespread discussions,” he said. “I don’t think I can be more transparent than that.”
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According to Goyal, the deal has almost been completed under the February 6 framework. He said: “The deal was concluded on February 6, confirmed by both the United States and India, and the broad outlines were determined at that time.” “Teams have been working since then to finalize the finer details, and there is always a bit of give and take,” he added, comparing it to last-minute negotiations between New Delhi and London before the Comprehensive Economic and Trade Agreement between India and the UK was announced.
Goyal said the India-UK FTA will be the “most comprehensive agreement” India has concluded so far, and will come into force in July. India and the United Kingdom announced on June 17 that the CETA, along with an agreement on social security contributions, is set to enter into force on July 15.
