U.S. Should Pursue Free Trade Agreement with India

May 11, 2011
Industry group MAPI says that U.S. engagement in the Indian economy is relatively small and could shrink even more proportionally as others increase.

With growth in India projected at 8% to 10% and trade growth in the 20% to 40% range, industry group MAPI says the evolving relationship would be strengthened by a free trade agreement.

A new report released on May 11 showed that while much of the growth is balanced, private sector growth, it increasingly open to trade and foreign investment. A primary U.S. export and investment interest is the $1 trillion of infrastructure projects planned over the next five years.

The current outlook, however, is that while Indian trade has been growing rapidly with all principal trading partners, including the United States, U.S. engagement in the Indian economy is relatively small and could shrink even more proportionally as others increase, MAPI points out. U.S. market share for Indian imports of manufactured goods, in particular, is declining, as imports from China rise rapidly and FTAs with other countries provide a competitive price advantage relative to U.S. exports.

"In broader terms," Preeg says, "it will become increasingly difficult to maintain momentum for a U.S.-India economically-oriented strategic partnership as U.S. market share declines and India concludes FTAs with almost all major trading partners except with the United States and China."

Preeg suggests an FTA with India is economically justified and politically feasible if properly formulated in two stages. The first, which could be undertaken this year, would be a joint feasibility study of the mutual benefits from an FTA. This would serve as a basis for the second stage -- formal negotiations in 2012. Since formal negotiations would take two to three years, final agreement would be left for the President and Congress elected in 2012.

Such an accelerated timeline, Preeg admits, would require presidential leadership and bipartisan support from congressional leaders. While such a scenario may not be easy to achieve in Washington, Preeg points to President Obama's recent leadership role for congressional approval of FTAs with South Korea, Colombia, and Panama, which are receiving bipartisan support from Congress, based on clearly demonstrated gains for U.S. exports and broader foreign policy interests.

"India and the European Union are close to concluding an FTA, adding to India's existing FTAs with Singapore, South Korea, Japan, and Malaysia, with others under negotiation, including those with Canada, Australia, Thailand, and Indonesia," Preeg writes."These agreements put U.S. exports to India at a competitive disadvantage, which would be offset by a U.S.-India FTA."

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