Iran and Russia sanctions, trade to make for touchy US-India talks

Sanctions and stents will be among the sources of contention at the coming India-US 2 + 2 strategic and economic dialogue in Washington in the first week of July.

At the top of the list will be the US’s sweeping Countering America’s Adversaries Through Sanctions Act (CAATSA) that imposes sanctions on countries which trade with Russia and Iran.

External affairs minister Sushma Swaraj said on Monday that India will only abide by sanctions by the United Nations. A defiant New Delhi also plans to announce its purchase of the Triumf S-400 missile defence system from Russia later this year.

CAATSA gives exemptions for non-significant purchases and if Russia’s “behaviour” is shown to change. However, US defence industry sources say sanctions could kick in for purchases as low as $15 million.

The US is expected to point a finger at India’s applied tariffs, which are nearly four times those of the US, the arbitrariness of India’s price controls on medical device manufacturers, its new data localisation policies and the WTO incompatibility of Indian export subsidies.

India will also worry about the US review of its textile export privileges under the general system of preferences (GSP) programme. The US will note India’s own actions against medical devices and other exports are the reason for the review.

Both Indian and US officials admitted that with the sanctions issue coming out during an election year, a solution will be more difficult to reach.

However, New Delhi believes the US has gone too far with CAATSA. It is being driven by the US Congress and even President Donald Trump has expressed disapproval. A number of US treaty allies such as Indonesia, who use Russian weapons, will be affected as will many US firms that buy parts and services from Russia.

“US industry has woken up to the problems with this law,” said a US executive.

There is an expectation India’s investments in the Iranian port of Chabahar will be exempted – as happened last time the US imposed sanctions on Iran. Oil imports, however, are expected to decline but not fall to zero.

India may find it harder to ensure trade issues do not complicate strategic relations given the Trump administration’s mercantilist attitude.

Washington is peeved India has complained about US plans to deny the spouses of H-1B visa holders the automatic right to work given that no other country grants such privileges, including India.

There is a sense in Washington that Prime Minister Narendra Modi missed an opportunity when he told Trump that India had reduced its tariffs on US-made Harley-Davidson motorcycles but cited a still absurdly high 50% tariff. It was an opportunity to get India off Trump’s trade hit list.

Instead Trump publicly denounced Modi’s offer and India remains in the president’s crosshairs.

The positive side is that there are a large number of leading lights in the Trump administration, including Pentagon chief Jim Matthis, secretary of state Mike Pompeo and National Security Advisor John Bolton, who believe strongly in the US-India relationship and who will seek a managed solution to the fallout from CAATSA.