Despite progress in defence ties, deals in trade, sanctions, nuclear energy hang fire

With exactly a month left in U.S. President Donald Trump’s tenure, U.S. Ambassador to India Kenneth Juster begun a series of calls on Defence Minister Rajnath Singh and Petroleum, Natural Gas minister Dharmendra Pradhan and NITI Aayog chief Amitabh Kant, as well as “farewell discussions” with U.S.-India business chambers USIBC and USISPF.

The calls highlighted the achievements of the India-U.S. partnership in the last four years. While these include great strides in diplomatic, defence, commercial, energy and health areas, talks on waivers for possible sanctions, trade negotiations, and nuclear deals, are in the category of “unfinished business” between the the two countries.

No Free Pass

In a briefing this week, a U.S. official made it clear that despite hopes being raised in 2018 by the U.S. Congress’s amendment to the Countering America’s Adversaries Through Sanctions Act (CAATSA), that allowed the U.S. President to waive sanctions on India’s purchase of the S-400 missile systems from Russia, Mr. Trump has not made the decision to give India a pass.

Speaking about sanctions against Turkey for its purchase of the S-400, the official said this should be seen as a warning to others hoping to acquire the system.

“We would caution other U.S. partners against making major purchases of Russian defence equipment in the future that would also put them at risk of sanctions,” R. Clarke Cooper, U.S. State department assistant secretary for political-military affairs told journalists in Washington, adding that the sanctions could be actualised at any point and there is no “blanket waiver” possible.

“I know some states have thought or sought that either Congress or the Executive Branch would apply a waiver on sanctions, and I just would offer that is definitely not the case,” said Mr. Cooper, who had earlier called India’s consideration of the Russian S-400 and Sukhoi S-35 fighter jets as “problematic” as they would risk interoperability of India-U.S. defence systems.

However, when asked about the latest U.S. comments, Indian government officials dismissed concerns.

“There will no issues in interoperability of the U.S. and Russian systems as they will be plugged into the Indian grid. There are filters for that,” a defence official told The Hindu.

“The S-400 is a high technology platform and is a priority procurement and the U.S. understands that,” said another official.

Given that the Democrats had pushed for the CAATSA law, however, the government will have to take its chances with President-elect Biden in office providing the waiver once India takes delivery of the S-400 systems in 2021.

Curbs On Trade

Trade negotiations are another area where New Delhi hopes the Biden administration will pick up where it believes the Trump administration failed to deliver, particularly its failure to reverse the decision to revoke India’s Generalised System of Preferences (GSP) since June 2019 due to differences in the areas of medical devices, dairy and IT products.

In comments to business chamber FICCI this month, External Affairs Minister S. Jaishankar said Indian officials had been ready to cut a deal, but it “didn’t happen”, indicating that the problem lay at the U.S. Trade Representative’s end, and hoped to pick up the talks with USTR-designate Katherine Tai.

In another discussion with CII, however, USTR Robert Lighthizer blamed “extremely high” Indian tariffs for their failure to agree on even a “mini trade-deal” discussed by his team and Commerce Ministry officials for two years, and that the “political change” in Washington would be “a bit of a setback” that will “slow things up."

Meanwhile, officials hopeful of a commercial contract finally being finalised for the decade-old MoU between U.S.-based Westinghouse Electric Company and the Nuclear Power Corporation of India Ltd (NPCIL) to build six reactors in Andhra Pradesh — the first since Mr. Modi and U.S. President Obama announced “the deal is done” in 2015 — have also been disappointed with the lack of progress. Despite some hopes that the contract would be signed during President Trump’s visit to India in February 2020, the deal is yet to go through, indicating lingering concerns over India’s civil liability laws, which would have to be picked up with the Biden administration.

Both Indian and U.S. officials point out that the ledger of achievements during the last four years have been considerably longer than the “unfinished business”. They say that while New Delhi is now preparing hopefully for the Biden era, this period of plain-speaking, particularly Mr. Trump’s “blunt” and tough methods with India’s two main adversaries, Pakistan and China, and his flexibility in defence ties with India, would be missed.

Personal Proximity

In particular, they point to the intense political engagement between Mr. Trump and Mr. Modi, including two huge, joint public rallies in Houston and Ahmedabad held just five months apart in 2019 and 2020. The growing defence partnership, enhanced military exchanges bolstered by the signing of four foundational agreements: GSOMIA, LEMOA, COMCASA and BECA, U.S. grant of the STA-1 Strategic Trade Authorisation to India, capped by intelligence sharing and quick procurements during the ongoing standoff between Indian and Chinese troops at the Line of Actual Control (LAC), is clearly at the top of the list of achievements.

Added to this is the crystallisation of the “Quad” arrangement of Australia-India-Japan-United States and the “Indo-Pacific” policy that has led to regular talks at senior levels and the inclusion of all Quad militaries to the ‘Malabar’ exercises this year.

The growth in trade of goods and services (from $109 billion in 2015 to $142 billion in 2019) and increase in Foreign Direct Investment (FDI) from U.S. to India (from $35billion to $45billion) is significant, albeit lower than expected, given a turn away from U.S.-China trade. More remarkable, perhaps is the rapid growth in energy ties, driven by the U.S. decision to allow oil exports in 2015 and India’s decision to cut oil imports from Iran and Venezuela due to the threat of US sanctions.

As a result, in just two years from 2017 to 2019, Indian imports grew from zero to $4.5 billion, and the U.S. now accounts for a growing share of Indian oil and LNG imports.