Are India, US on the brink of trade war?

After many years, the world's oldest and largest democracies, India and the US, have locked horns in an unprecedented manner over a series of trade disputes that have left a question mark on trade relations between the countries.

The imbroglio, on issues such as poultry exports, duty on steel rods and professional visa fees, has seen both approach the World Trade Organization's Dispute Settlement Body to put an end to the bitter dispute.

However, some experts believe the dispute is about more than what meets the eye. Others feel the situation is normal, one akin to any between strong trading partners.

Over the last couple of years, as the US gradually saw a change of regime, trade ties between India and the US have seen a paradigm shift.

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A look at what is happening behind the curtains reveals significant factors influencing the US's stance with its leading Asian trade partners.

A large part of it is political rhetoric aimed at winning the confidence of the US citizenry, which loves to see their leader raise a strong and stern voice in global matters.

In March, the US commerce department had imposed a 286 per cent countervailing duty on specific steel rods imported from India, arguing these products were heavily subsidised and, therefore, led to an unfair pricing mechanism.

In 2010, the US had increased fees for professional visas - H1B and L1 - for applicants of firms in which more than half the employees were immigrants.

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India challenged both the moves in the WTO, while the US moved the WTO's DSB against India for restricting its poultry exports into the country.

"Since the economic downturn, lobbies in the US have been quite active in securing their interests. Often, in the name of securing jobs for American citizens, the prevailing mood in the administration is to aggressively secure incremental market access, ostensibly to remedy the bulging current account deficit.

"The former dimension has found expression through actions taken against service providers in India or select industries in China that have, or could have, a sizeable presence in the US market," says Biswajit Dhar, director-general of the New Delhi-based Research and Information System for Developing Countries.

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He adds action taken by the US administration on trade can, therefore, be quite independent of the political relations US shares with its partners.

According to a senior official from the ministry of commerce and industry, the US has become "extremely protectionist" in the last couple of years, and is linking just about everything to the coming Presidential elections in that country.

"They are entirely playing to their domestic constituency. It is their way of jingoism," the official told Business Standard, on condition of anonymity.

In stark contrast to the rising friction in trade between the countries, US President Barack Obama's visit to India in November 2010 had seen much bonhomie between the nations.

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Obama had then scouted for greater access for US companies to the Indian market, signing deals worth billions of dollars.

Some trade analysts view the recent trade disputes as indirect fallout of the Doha round of global trade talks in the WTO, stalled for more than a decade.

Recently, the US had urged emerging countries like India and China to take more responsibility in giving market access to goods and services from developed countries.

But some say the US is simply jittery over India's success in the information technology sector. Some states in the US have also called for a ban on outsourcing.

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Manoj Pant, professor at the Centre for International Trade and Development (School of International Studies, Jawaharlal Nehru University), believes the tensions are part of the continuing dispute in WTO meetings in which demands for a cut in duties and non-tariff barriers in developed countries, particularly the demand for reduction in agricultural subsidies, have been getting support.

"It is well known that he (Obama) is employing this rhetoric as his popularity rating is falling and anti-outsourcing is his known position against Republican (Mitt) Romney. Remember, he had employed the same rhetoric before the last election," Pant said.

Protectionist tendencies in the US usually gain traction during presidential elections. Democrats are particularly known to whip up national sentiment and step up the offensive against foreign entities.

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This is evident from President Obama's campaign in which he spoke of bringing back "jobs that have moved overseas".

"These recent tensions are, to some extent, due to the ongoing financial crisis. The administration needs to play to the gallery and show it is strong. While it says it is fighting for the interest of its citizens, at the back of its mind, the measures are to win elections. I believe all these issues will be resolved once the elections are over," said Anwarul Hoda of the Indian Council for Research on International Economic Relations.