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The strategic partnership between the United States and India is deepening, nourished principally by high growth in trade and investment, and the evolving relationship would be strengthened by a free trade agreement (FTA), according to a new Manufacturers Alliance/MAPI report.
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In The Growing U.S. Interest in a Free Trade Agreement with India, Ernest Preeg, senior advisor for International Trade and Finance and report author, highlights that annual gross domestic product growth in India is projected at 8 percent to 10 percent, with trade growth in the 20 percent to 40 percent range. Much of it is balanced, private sector growth, 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. 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.”
Despite any political caution that may exist prior to the looming 2012 elections, an FTA with India is economically justified and politically feasible if properly formulated, and Preeg suggests 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."