Trade issues through US eyes

The Trump Administration, which views bilateral trade balances as an indicator of the health of a trading relationship, has taken issue with the US trade deficit with India ($27 billion deficit in goods and services trade in 2017), and has criticised India for a range of “unfair” trading practices. India favours taking a broader view of their trade ties beyond the trade balance. The consequences of trade deficits are contested.

Tariffs

Bilateral tensions have become heightened over US and Indian tariff policies. On June 1, 2018, the United States began applying 25 per cent steel and 10 per cent aluminum tariffs under Section 232 of the Tariff Expansion Act of 1962. The tariff hikes apply to all countries; India did not receive an initial exception like some trading partners, nor negotiate an alternative quota arrangement. India supplied 2.6 per cent ($761 million) of US steel and 2.2 per cent ($382 million) of US aluminum in 2017. It notified the World Trade Organization (WTO) of its plans to retaliate against the United States with tariffs on $1.4 billion of US goods (e.g., nuts, apples, steel, and motorcycles), but has deferred applying the tariffs until November 2, 2018, in hopes of a bilateral resolution. India also filed a WTO complaint against the US tariff increases, and joined related complaints lodged by other WTO members.

In September, India announced plans to raise duties on “non-essential” goods (e.g., some precious stones, steel, and consumer electronics) from all countries to curb imports in order to support its depreciating rupee. This follows a pattern of tariff hikes by India in recent years (such as on cell phones and solar panels), as well as longstanding US concerns over India’s tariff regime. India has relatively high average tariff rates, especially in agriculture, and can raise its applied rates to bound rates without violating its WTO commitments, causing uncertainty for US exporters.

GSP

In April, the United States launched a review of India’s eligibility for Generalized System of Preferences, a US programme that gives duty-free tariff treatment to certain US imports from eligible developing countries to support their economic development. The review concerns India’s compliance with the GSP “market access” criterion and also relates to US medical and dairy industry market access petitions. Continued GSP eligibility is a top priority for India, GSP’s top beneficiary. GSP accounted for 12 per cent ($5.6 billion) of US goods imports from India in 2017.

Services

The United States and India are competitive in certain services industries. Barriers to US firms’ market access include India’s limits on foreign ownership and local presence requirements. For India, a key issue is US temporary visa policies, which affect Indian nationals working in the United States. India is challenging US fees for worker visas in the WTO, and monitoring potential US action to revise the H-1B (professional worker) visa programme. India also continues to seek a “totalization agreement” to coordinate social security protection for workers who split their careers between the two countries.

Agriculture

Sanitary and phytosanitary (SPS) barriers in India limit US agricultural exports. The US questions the scientific and risk-based justifications of such barriers. An ongoing issue is India’s purported compliance with a WTO decision against its ban on US poultry imports and live swine due to avian influenza concerns; the WTO held that India’s measures violated WTO SPS rules. Each side also sees the other’s agricultural support programmes as market-distorting; India’s view of its programmes from a food security lens complicates matters.

Intellectual Property (IP)

The two sides differ on how to balance IP protection to incentivise innovation and support other policy goals, such as access to medicines. India’s IP regime remains a top concern for the United States, which designated India again on its “Special 301” Priority Watch List for 2017, based on such concerns as its treatment of patents, infringement rates, and protection of trade secrets.

Localisation Trade Barriers

The United States continues to press India on its “forced” localisation practices. Initiatives to grow India’s manufacturing base and support jobs include requirements for in-country data storage and local content for government procurement in some sectors.

Investment

India has made FDI reforms, such as raising foreign equity caps for insurance and defence, but barriers remain in multi-brand retail and others. India’s regulatory transparency and judicial infrastructure present challenges for US investors. Two-way US-Indian FDI are associated with US jobs and exports in a range of economic sectors, but US direct investment in India has prompted some concerns about offshoring.

Defence Trade

The two nations have signed defence contracts worth more than $15 billion since 2008, up from $500 million in all previous years combined. Major future sales are anticipated, including the potential direct commercial sale of Apache attack helicopters, as well as Guardian maritime drones and additional C-17 transport aircraft. India is eager for more technology-sharing and coproduction; recent reports indicate US and Indian interest in producing F-16 combat aircraft there. The US, meanwhile, urges more reforms in India’s defence offsets policy and higher FDI caps in its defense sector. India’s apparent intention to spend billions of dollars to purchase the Russian-made S-400 air defence system may yet trigger US sanctions on India under the Countering America’s Adversaries Through Sanctions Act (P.L. 115-44).

—Source: US Congressional Research Service (Oct. 2018)