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Explained: Issues in India-US trade

Donald Trump says India is a ‘tariff king’, and his Commerce Secretary has complained about ‘overly restrictive market access barriers’. How are the two countries negotiating their trade disagreements?

Written by Anil Sasi | New Delhi |
Updated: May 9, 2019 8:38:51 am
Donald Trump, us commerce secretary, wilbur ross, winds indo-pacific trade mission, commerce industry, suresh prabhu, us commerce wilbur ross, india us trade, india us trade issues, indian express Exports to the US from India under GSP — at .58 billion — amounted to over 12% of India’s total goods exports of .2 billion to the US that year. The US goods trade deficit with India was .9 billion in 2017.

US Commerce Secretary Wilbur Ross fired a fresh salvo in the ongoing trade spat between Washington and New Delhi on Tuesday, telling business leaders that American technologies and expertise could play an important role in developing India’s economy, but they had to grapple with difficult trade barriers and regulations.

Ross’s criticism was in line with President Donald Trump’s repeated claims that India is a “tariff king” and imposes “tremendously high” tariffs on American products. Trump has dismissed as inadequate the Indian government’s decision to halve the import tariff on Harley-Davidson motorcycles from 100% to 50% last year, and has maintained that his administration is “fixing broken trade deals” to protect American workers.

What did Ross say, and in what context?

Ross spoke in New Delhi three days before enhanced US tariffs on imports from China were scheduled to kick in. A notice posted to the Federal Register on Wednesday said that starting Friday, the US would raise tariffs on $200 billion worth of Chinese imports to 25% from the existing 10%. The notice, which cited the “lack of progress in the additional rounds of negotiations since March 2019”, came just before the opening of a fresh round of talks aimed at salvaging the trade agreement between the two countries, and alongside several aggressive tweets from Trump saying higher tariffs were “great for U.S., not good for China!”.

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READ | ‘Significant’ market access barriers faced by US businesses in India: Wilbur Ross

On Tuesday, with representatives of most of the 100-odd American companies that are visiting India as part of the US Department of Commerce’s largest annual trade mission programme (called Trade Winds) in attendance, Ross asserted that India was at number 13 in the list of US export markets because of its “overly restrictive market access barriers”. India’s average applied tariff rate, he said, was “the highest of any major world economy”. However, alongside the tough talk on “unjust” trade barriers, there were also indications of a softening of the US stance on some sticking points. The Indian side indicated the US delegation had conveyed the possibility of pushing back the final decision on the withdrawal of incentives to Indian exporters under its Generalized System of Preferences (GSP) programme that it announced in April, to after the formation of the new central government.

Explained: Issues in India-US trade United States Secretary of Commerce Wilbur Ross. (Source: Wikimedia Commons)

Where does the US currently stand on the GSP programme?

The possibility of the US displaying flexibility on the GSP programme is a positive for India. The GSP allows duty-free entry for over 3,000 products from designated beneficiary countries. India has been the biggest beneficiary of the GSP regime, and accounted for over a quarter of the goods that got duty-free access into the US in 2017.

India-US trade Explained Click image to enlarge

Exports to the US from India under GSP — at $5.58 billion — amounted to over 12% of India’s total goods exports of $45.2 billion to the US that year. The US goods trade deficit with India was $22.9 billion in 2017.

READ | India, US to explore ‘suitable solutions’ to outstanding trade issues: Govt

The US had launched an eligibility review of India’s compliance with the GSP market access criterion in April 2018. In March this year, the US Trade Representative’s Office said that removing India from the GSP programme would not take effect for at least 60 days after notifications to Congress and the Indian government, and that it would be enacted by a presidential proclamation. Although India has stated that the withdrawal of these duty benefits under GSP would not impact its exports to the US, small exporters have asked for continuation of the programme. A group of 25 influential lawmakers had urged the USTR to not terminate the GSP programme with India after the expiry of the 60-day notice, saying American companies seeking to expand their exports to India could be affected.

But is India’s tariff structure indeed unusually high?

While India’s tariffs used to be high until about the late 1990s, the peak customs duty — the highest of the normal rates — on non-agriculture products has come down steadily since: from 150% in 1991-92 to 40% in 1997-98, 20% in 2004-05 and, finally, to 10% in 2007-08. According to World Trade Organisation (WTO) data, India’s average applied tariff is now around 13.5% — and there are plans to move towards ASEAN tariff rates progressively (approximately 5% on average). Over the last five years, however, there has been a move by the government to increase duties on a number of items.

Ross said on Tuesday that it was “especially unusual” that the US had a trade deficit with India in the services sector too. “We generally have services surplus with most countries. But in the case of India, the deficit is largely due to IT services,” he said.

Seven disputes between India and US are at various stages of the Dispute Settlement Mechanism under the WTO. These pertain to, (i) poultry and poultry products from the US, (ii) countervailing duties against India’s export of steel products, (iii) measures against import of solar cells and modules under the National Solar Mission, (iv) the US’s Sub-Federal Renewable Energy Programmes, (v) US measures concerning non-immigrant visas, (vi) India’s export promotion schemes and, (vii) the US tariff hike on steel and aluminium products.

How does US industry view the positions taken by India?

The eligibility review of India’s compliance with the GSP market access criterion was triggered after concerns were raised by the medical devices and dairy industries in the US. The Indian government’s attempts to arrive at a “balanced” package that would address American concerns while protecting the interests of the Indian public have been largely unsuccessful.

In 2017, India capped the prices of cardiac stents and knee implants, slashing prices by over 70% and 60% respectively. The move impacted US giants like Abbott, Medtronic and Boston Scientific. India also said that the requirement that source animals for dairy products should never have been fed animal-derived blood meals was “non-negotiable” from a cultural standpoint — and that it could not dilute this requirement in its certification procedure.

In June 2018, India had intended to put higher tariffs on 29 goods imported from the US in retaliation for that country’s decision to impose hefty tariffs on imported steel and aluminium products. The move, which could potentially impact products like walnuts, almonds, and chickpeas, has been deferred several times, most recently late last month.

Two issues that the US side has specifically raised during the latest round of negotiations are the “treatment of Walmart after their acquisition of Flipkart”, and the problems on data localisation reportedly faced by companies such as MasterCard and Visa.

What is India’s official position on these disagreements?

A senior officer of the Department of Commerce indicated that the government would continue to engage in “internal” discussions, and that the “scope for discussions” with the US was “always open”. Commerce Minister Suresh Prabhu said after Tuesday’s meeting that India would like to work with the US to resolve such issues in a way that benefits both countries. “We will address the issues with the United States in a manner that will make this relationship better not just between the United States and India, but for the rest of the world as well,” he said.

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