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India and the US, despite their robust diplomatic ties, have quibbled on trade over the years and across administrations. Photo: Mint
India and the US, despite their robust diplomatic ties, have quibbled on trade over the years and across administrations. Photo: Mint

Why India-US trade deal remains elusive

  • India has increased buying crude oil and civilian aircraft from the US in recent times
  • US fixation over tariffs, e-commerce curbs, data protection bill have put India in a spot

New Delhi: When the US on 4 March last year announced that it is withdrawing duty-free entry for Indian exports worth around $6 billion, it brought the curtains down to a year- long dialogue between the two strategic partners for hammering out a limited trade package.

In a hurriedly called press briefing early next day, India’s trade secretary Anup Wadhawan blamed the “disproportionate demands" by the US for collapse of the talks.

If both sides fail to close the limited trade deal during President Donald Trump’s two-day visit to India starting Monday as they have indicated, it would be third time unlucky as the deal was expected to be signed in September during Prime Minister Modi’s visit to the US to attend the United Nations General Assembly.

India and the US, despite their robust diplomatic ties, have quibbled on trade over the years and across administrations. However, President Donald Trump who pursues an “America First" approach has been personally very vocal about the perceived high tariff walls that India has put and has often called out India terming it “tariff king". India denies the charge of being a high-tariff nation, holding that its tariff regime is fully compliant with its commitments under the World Trade Organisation rules.

To accommodate the US complain about the $18 billion trade surplus that it enjoys, India has increased buying crude oil and civilian aircraft from the US in recent times. US fixation over tariffs, India’s e-commerce restrictions and data protection bill have put India in a spot.

China factor

Any tariff cut by India to allow greater import of US goods needs to be done in a non-discriminatory manner for other countries as per WTO rules as both the countries are not negotiating a free trade agreement at present. For example, duty cut on high end mobile phones as demanded by the US side will benefit China as Apple manufactures most of its phones there. Indian commerce ministry in its 5 March statement last year raised the same fear. “On reduction of our IT duties, India's duties are moderate and not import stopping. Any MFN duty reduction would almost entirely benefit third countries," it added. With over $50 billion trade deficit with its Northern neighbor, India is obviously not keen to increase imports from China.

Similarly, if India cuts duty on high-powered fully built motorcycles to satisfy Trump’s fascination for selling more Harley Davidson bikes, it may actually benefit similar other brands such as Triumph (British), Yamaha (Japanese), and Dukati (German-Italian).

India’s trade conservatism

The long-stretched Regional Comprehensive Economic Partnership (RCEP) negotiations which India exited at the last moment, seems to have fundamentally changed the thinking of the Modi government on its trade engagements. Not only does it now flex its muscles with smaller trade partners like Malaysia by putting restrictions on palm oil imports, it has increased tariffs on a host of products like toys and furnitures what it calls non-essential items. The open calls for import substitution and turn to Swadeshi have critics cry protectionism.

After the Budget FY21 put a health cess on import of medical devices amid talks between India and the US to find a way out of price caps put by India on stents and knee implants, Nisha Desai Biswal, president of the US India Business Council in an interview said she expects the US government to seek clarifications on the matter from the Indian side. “People are asking themselves why now and how this makes sense. I would imagine that it will be an issue of discussion between the two governments because finding a way forward on medical devices has been such an involved conversation between the two governments," she added.

Further signaling that India is in no mood to give a walk over on the proposed trade deal with the US, Goyal at an industry event on Thursday said: “I can assure you that just like in RCEP negotiations (where) India stood its ground, India’s decision on opening up our markets will rest on our imperatives for trade, not diplomacy. The same principle is going to be continued forward when we talk to any other country. India’s interests will be paramount," he added.

The future of the India-US trade relationship will depend on how patient and considerate US remains towards India’s development concerns and the flexibility that India can show within its self-imposed red lines.

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