7 PM | India and the US need to address the vexed issues in trade | 24th September, 2019

Context:Trade issues between India and US.

More in News:

  • PM Narendra Modi is on a week-long visit in the United States from September 21 to 27. This will be PM Modi’s sixth visit to the US.
  • On September 22, PM Modi attended the “Howdy, Modi” event at NRG stadium in Houston. Prime Minister Narendra Modi and US President Donald Trump met at an Indian-American rally in Houston, Texas, as their nations negotiate for easing trade tensions.

India – US Trade Relations:

  • The US is now India’s second largest trading partner and largest export destination, with India having a small trade surplus of around $20 billion.
  • The US is also the largest provider of foreign direct investment (FDI) — around $45 billion — to India, with India investing close to $10 billion in the US. 
  • Bilateral trade has been steadily increasing. In 2018, it reached $142.1bn, with India having a surplus of $24.2bn, according to official US data.
  • India mostly exports gems, pharmaceuticals, machinery, mineral fuels and vehicles to the US.
  • Apart from agricultural produce, the US exports to India precious metals and stones, mineral fuels, aircraft, machinery, and optical and medical instruments.

India-US Trade issues:

  • India described as the “king” of tariffs:
    • Despite growing political and strategic ties, there’s been tension over trade issues. President Trump says India’s tariffs – taxes on imports – are “unacceptable,” and has described India as the “king” of tariffs.
    • India’s average tariff rate in 2018 was 17.1% – that is significantly higher than the US, Japan and the EU, all of whom had rates of between 3.4% and 5.2%.
    • However India comes out better on trade-weighted average tariff. In 2017, India’s trade-weighted average tariff was 11.7%, Brazil’s was 10% and South Korea’s was 8.1%.
    • India is not alone in charging high duties – for example, Japan, South Korea and Australia all have high tariffs on specific imports. The US imposes a 350% tariff on certain types of tobacco
  • GSP Withdrawal citing market access issues:
    • The Generalized System of Preference (GSP) is the largest and oldest US trade preference programme and is designed to promote economic development by allowing duty-free entry for thousands of products from designated beneficiary countries.
    • In June, President Trump terminated India’s designation as a beneficiary developing nation under the key GSP trade programme after determining that New Delhi has not assured the US that it will provide “equitable and reasonable access” to its markets.
    • Steel and Aluminium tariff issue: The US increased tariff on Steel and Aluminium imports from 12 countries including India. Government approached the WTO’s Dispute Settlement Body against the US move. Simultaneously, trade officials are taking the issue to the US Trade Representative and other higher platforms. 
    • Use of commercial policy by India: as a response to the US tariff on Steel and Aluminium, Commerce Ministry on June 20th notified tariff hike on 29 US products, including almonds, apples and phosphoric acid etc. (worth $10 bn) in retaliation to the steel and aluminium tariff hikes by the US. At the same time, India reduced tariff on selected imports from India including that on few categories of bikes to defuse the trade tension.
  • Visa restrictions by the US: Perhaps the most devastating US step on India is the Trump administration’s decision to put curb on H1 B visas.
    • The number of visas to be issued under H1B was reduced.
    • Visa fees doubled for H1B.
    • Visa eligibility in terms of annual income raised; thereby reducing opportunities for India’s skilled Labour.
    • H1 B visas will be issued for single projects. After the completion of the project, the person should return without looking for any other job there.
    • US says that two-year degree is not enough. Rather a four-year degree is a must of the issue of H 1B visas.

Visa restrictions will hurt the operations of Indian IT firms in the US.

  • Export Subsidy issue: US raises objections at the WTO to the export incentives given by India. At the WTO, the US argued that India doesn’t qualify to provide export incentives allowable for low income developing countries. India’s GNI per capita income crossed $1000 for three consecutive years and hence the country is not eligible to provide export subsidies. The US objected five export incentives given by India.
  • Developing country treatment: At the Buenos Aires Ministerial Conference of the WTO, the US argued that countries like China and India doesn’t qualify for the Special and Differential Treatment benefits given for developing countries. India strongly objected to the US version.
  • Intellectual Property Rights: India is continuously listed under the priority watch list in the US Intellectual Property documents that is prepared under the infamous Special 301 law. India is placed along with China and ten other countries. According to the US, countries in the list will be the subject of particularly intense bilateral engagement in future.
  • India’s e-commerce restrictions are another source of irritation. Companies like Amazon and Walmart have been hurt, not to mention millions of Indian consumers beginning to get their benefits, of an assured quality, delivered at reasonable prices. India should encourage more competition in this area rather than impose restrictions on global ecommerce companies that also provide avenues for Indian companies to enter global value chains.

Way Forward: A new trade deal with US is need of the hour. It will make it a lot easier to deal with Trump’s administration on a range of issues including terrorism, Kashmir and the unfolding crisis in Afghanistan. A new trade agreement must be about preparing India for profound changes in the global economic order, buffeted by Trump’s politics as well as the unfolding technological disruption. Getting India’s most important trade relationship right in the near term and charting a bold course for a mutually beneficial commercial partnership with the US over the long term are urgent and worthy goals in themselves.


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