As standoff persists, a US-India trade deal is unlikely during Trump visit

Topics GSP | RCEP deal | Narendra Modi

Manila: President Donald Trump, right, and Indian Prime Minister Narendra Modi shake hands during a bilateral meeting at the ASEAN Summit at the Sofitel Philippine Plaza, Monday, Nov. 13, 2017
US President Donald Trump's upcoming visit to India is not only heavy on optics — a grand roadshow in Ahmedabad — but also substance. Securing at least a limited yet favourable trade deal, dubbed "trade package", is on top of Trump's agenda, but officials in New Delhi appear unsure of him reaching the trip's ultimate goal.


The US wants India to tweak its tariff rates and further open up its markets to American products. Back and forth talks on the matter have faltered as the vanguard team, leading Trump's trade charge, has scrapped its visit to India. Led by Trump's point man on trade — US Trade Representative Robert Lighthizer — the team was set to visit New Delhi last week to give finishing touches on the proposed deal. But that plan has now fizzled out as talks several issues remain deadlocked, a week before the US president reaches India on February 24.


The stakes remain high for both nations, given the compulsions of each. Trump has repeatedly called India a "tariff king" for pushing its exports unethically and not allowing American goods into its markets.


With his trade war with China still unsettled, and global growth remaining unsteady, Trump is under pressure to showcase his ability to tame major trade partners, experts say. "On the other hand, India changed its opposition to a bilateral trade deal overnight, after the country stepped back from the proposed Regional Comprehensive Economic Partnership pact. Now, the US is putting pressure," said a policy advisor at the US-India Business Council.


Issues galore


India’s merchandise exports to the US have risen for the past four years, reaching $52.4 billion in FY19, up from $47.8 billion in FY18. On the other hand, in-bound shipments, too, jumped to $35.5 billion last year, from $26.6 billion in FY18.


"The US has remained India's largest market for exports for years now. As a result, issues are spread across segments and opposition to the way trade is conducted remains deep from lobbies in every industry," said Biswajit Dhar, senior trade policy expert and Professor at Jawaharlal Nehru University.


In the latest episode of fighting, American trade officials have expressed unhappiness over New Delhi’s decision to saddle medical device imports with an additional health cess, said an official in the know. Despite remaining the largest source of shipments, US-made devices have continued to lose market share in India to cheaper alternatives from China and Germany. Though India has said it won’t roll back the tax, sources revealed the Centre was considering allowing a trade margin policy for certain high-value items, such as coronary stents.


The Indian government has offered an olive branch with respect to agri products. Trump's core constituency of American farmers has lost their prime foreign markets after nations retaliated to Trump's unilateral tariff hikes by making it equally expensive to buy American products. India has now proposed to cut duties step by step on high-value imports, such as almonds, walnut, apples, and wine, which were among 29 items on which the government had hiked duties by up to 50 per cent last year, the sources said.


Scant rewards


The new taxes are estimated to rake in an estimated $240 million in additional taxes. India claims the amount is equal to the estimated loss faced after the US imposed a 25 per cent additional levy on steel, and 10 per cent on aluminium products from India, in May 2018. But the demand to exempt India from those aluminium and steel tariffs hasn't been met with approval by the US.


On the other hand, India's biggest demand for getting back trade benefits given by the US under its Generalized System of Preferences (GSP) scheme has been a no starter. All hope ended last week when the US classified India as a developed economy, ineligible for benefits given to developing countries. The GSP is America’s oldest preferential trade scheme, which offered Indian exporters tariff-free access to the US until June 2019, when all benefits were suspended.


India was the largest beneficiary nation under the GSP scheme, with benefits from tariff exemptions amounting to $260 million in 2018, according to the official data, with goods worth $6.35 billion covered under GSP in 2018-19.


“Discussions on other issues —lower duties for US industrial components, engineering products, and information technology goods like smartwatches and iPhones — are lengthy and not expected to complete by the time of Trump’s visit," an official said. Officials concede while the bare details may be discussed before the trip, any deal and by extension, the broad direction of India-US trade relationship, will   inevitably come down to a clash of personalities when both Trump and Narendra Modi meet. 

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