Know About India-US Trade related Issues

Know About India-US Trade related Issues

Updated on 16 May, 2019

GS2 International Relations
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Donald trump’s statement in March, 2019; "India is a very high-tariff nation. They charge us a lot," Statement of US Commerce Secretary Wilbur Ross during the recent visit to India; “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

Context: US Commerce Secretary Wilbur Ross, along with representatives of most of the 100-odd American companies are visiting India.

Introduction This visit is a part of the US Department of Commerce’s largest annual trade mission program (called Trade Winds). During this visit, U.S. delegation highlighted the trade-related issues between India and US.

What are the concerns raised by the US Tariff barriers: President Trump has called India “a very high-tariff nation” and criticized tariff imbalances, such as on motorcycles (which previously faced 100%, now 50%, Indian tariffs, compared to U.S. tariffs of 0% to 2.4%).

India’s SPS barriers:  Sanitary and phytosanitary (SPS) barriers in India limit U.S. agricultural exports. One of its examples is its ban on U.S. poultry imports and live swine due to avian influenza concern.

Intellectual property Rights (IPR): One of the major concerns raised by US is India’s weak IPR regime. In the pharmaceutical and agricultural chemical sectors, it said India continues to lack an effective system for protecting against the unfair commercial use, as well as the unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approvals.

Services: The United States and India are competitive in certain services industries. Barriers to U.S. firms’ market access to India include India’s limits on foreign ownership and localization requirements.

Trade deficit: U.S. goods and services trade with India totaled an estimated $142.1 billion in 2018. Exports were $58.9 billion; imports were $83.2 billion. The U.S. goods and services trade deficit with India was $24.2 billion in 2018.

Data localization requirement: under draft E-commerce policy, India has adopted stringent rules for the localization of data for companies that function within its borders. All user data is required to be stored in India now. This drive will force global card payments companies such as Mastercard and Visa to move their data to India. These requirements are the troubling US.

Solar cells and solar modules: India and US had been at loggerheads in WTO due to the enforcement of domestic content requirement rule by India under National Solar Mission.  Under this rule, solar power developers were required to use Indian-made cells and modules.

Issue of Poultry industry: In 2007, India had imposed the ban under the Indian Livestock Importation Act, 1898, as a safeguard measure against the spread of low pathogenic strains of avian influenza. By mid-2018, After WTO ruling, India began to allow the import of chicken parts from America but only in small quantity.

Issue of Daily industry: India imposed the requirements over the import of dairy products that source animals for dairy products should never have been fed animal-derived blood meals and made this condition “non-negotiable” due to cultural standpoint and denied to dilute this requirement in its certification procedure.

Steps taken by US against India Generalized System of Preferences: Based on the petitions received from National Milk Producers Federation and the U.S. Dairy Export Council and India’s step to put cap on the prices of medical devices, like stents, US Trade Representative body recommended India’s expulsion from GSP.

Read Also: What do you mean by trade war?

Generalized System of Preferences It is a United States trade preference program, to promote economic development by eliminating duties on some products it imports from the 120 developing countries, including India, designated as beneficiaries.
  • Effects on India: Although India has tried to downplay the negative impacts of this expulsion; But India will lose the benefit of zero tariffs on $5.6 billion of exports to the United States.

Iran oil import issue:  U.S. has ended waivers that allowed India the import of crude oil from Iran without facing U.S. sanctions. The waiver allowed India the import of crude oil from Iran without facing U.S. sanctions for 180 day period.

  • Effects on India: India may face consistent oil supply issue. In 2018-19, 10.9% of India's crude demands were met by imports from Iran. While Iran's crude oil exports to India was cheaper, now India may have to purchase US’s crude oil, that is among the highest priced in the world.
  • Moreover, U.S. has just stated it cannot ensure the sale of its crude oil to India at concessional rates because oil is owned by private sector and US cannot force them to do so.

Intellectual Property Rights: India has been 'Priority Watch List' in its annual Special 301 report, for alleged violations of intellectual property rights. Major reasons given for the action are;

  • IP challenges faced by Pharmaceuticals,
  • insufficient enforcement actions,
  • copyright policies that do not properly incentivise the creation and commercialisation of content, and
  • An outdated and insufficient trade secrets legal framework.

Tariff increase on steel imports: US increased its tariffs over imports of Steel and Aluminum from other countries including India. These include the U.S. 25% steel and 10% aluminum tariffs under the national-security based “Section 232” law.

Issue of Visa requirement: H-1B Visa programme allows foreign workers to obtain temporary authorisation to work and stay in the US. The US offers 65,000 standard H-1B visas for skilled workers and an additional 20,000 visas for workers with a US master’s degree or higher. Recently an amendment was introduced to the rules of H-1B that will tweak the selection of H-1B visa petitions to incorporate petitions of US advanced degree holders for the lottery of the first 65,000 cap. Due to new regulations, Visa issued to Indian workers has drastically reduced.

Steps taken by India India has taken many steps to resolve its issues with US, such as:

  • Acceptability of US market access requests related to products like alfalfa hay, cherries and pork was conveyed.
  • India has conveyed to US that it has drastically reduced the tariff rates from 150% in 1991-92 to 40% in 1997-98, 20% in 2004-05 and, finally, to 10% in 2007-08. India’s trade-weighted average tariffs are 7.6%, which is comparable with the most open developing economies.
  • Due to various initiatives resulting in enhanced purchase of US goods like oil and natural gas and coal the US trade deficit with India has substantially reduced in the years 2017 and 2018.
  • As per the WIPO’s 2018 report, the patents granted by India increased from 8,248 in 2016 to 12,387 last year.
  • Initiatives such as US-India SME Forum, held recently will pave the way for collaboration and partnership between the US and Indian small and medium enterprises (SMEs)

Way forward Political and security ties between India and the United States have grown but trade has become problematic. India should as of now avoid any more confrontation with the US and engage in “internal” discussions to improve the economic ties with U.S. on the lines of defence relations.

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