Sunday, December 5, 2021

US–India Trade Tensions

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Recently US Secretary of Commerce, Wilbur Ross, described India as the country with the highest tariffs in the world. He was in New Delhi for participating in the 11th “US Trade Winds Indo-Pacific Business Forum and Mission Initiative”, the US government’s largest annual trade mission; that was held this year in India.

The United States is India’s biggest trading partner after China.  In the bilateral meeting with the Indian Commerce Minister, Mr. Ross reiterated US President Donald Trump’s slogan “Make America great again”. He said, “Let’s make America great again by making India-US relationship far better again”, The US Secretary of Commerce, coined a new term “MAGAWIC”, or “Make America great again with Indian cooperation”. However, all is not well in the trade Indo-US relations and there are undercurrents of tension.

India is concerned about the worsening trade war between US and China; the US decision to enforce sanctions on oil imports from Iran and the withdrawal of incentives to India under the Generalized System of Preferences (GSP) programme. The GSP is a US trade programme for providing developing countries preferential duty-free access to ‘multi-variate’ products, which was instituted by the Trade Act of 1974. India is a significant beneficiary of the GSP. The GSP is different from ‘Most Favoured Nation’ (MFN) status given under World Trade Organization (WTO) regime. President Donald Trump has plans to end the Generalized System of Preferences (GSP) for India. US Commerce Secretary also warned that any retaliatory tariff rise by India for US goods will not be “appropriate” under WTO rules.

Mr. Ross added that India’s new rules on e-commerce increase the cost of doing business through new entry barriers, and the “data localization” restrictions have been “discriminatory” for US firms. The price caps on medical devices imported from the US were also flagged as barriers to trade. However, the bilateral negotiations regarding these issues will be taken up in detail only after the next government takes office.

Reports highlighted that the US Secretary got it wrong, when he observed that India has the highest tariff rates in the world. In fact, India’s trade weighted average applied tariff is 7.5%, below Brazil’s 10.3% and South Korea’s 9%.The US Commerce Secretary and Indian Commerce Minister appreciated the “strong, robust and growing bilateral relations” between India and US in trade and commerce. A joint statement noted that bilateral trade in Goods and Services registering a growth of 12.6% from $126 billion in 2017 to $142 billion in 2018. Special emphasis was given to small and medium enterprises (SMEs) for the first time in the bilateral trade discussion forum.

US Commerce Secretary led a delegation of 100 American business leaders. Their significant goal was to conduct meetings flagging the issues relating to ‘ease of doing business’ in India, by giving better market access for American companies and also for eliminating barriers to entry regarding data localization. The barriers to entry included both tariff and non-tariff barriers. The FDI rules for e-commerce policy in India does not provide level playing field (LPF) for foreign investors such as Amazon and Walmart, was one of the major issues flagged by US Secretary of Commerce.

The growing “trade imbalance” between India and US is what President Trump has highlighted in the past. In 2017-18, India’s exports to US were $47.9 billion, while India’s imports were only $26.6 billion. This trade surplus of $21.3 billion for India is what US highlights as “trade imbalance”.  The US also demands India to review Reserve Bank of India’s (RBI) policy on financial services companies to store data in local servers. US insists on balanced trade relations between India and US. However, it has to be noted that India could take retaliatory measures-if the US withdraws GSP.  After all, it is the nation’s duty to protect its own economic interests.

Script: Dr. Lekha Chakraborty,Associate Professor, National Institute Of Public Finance And Policy

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