Days ahead of trade talks, US unhappy with cess on medical devices

US Trade Representative Robert Lighthizer is set to visit New Delhi next week

Days before India and the United States start talks on a trade package, American trade officials have expressed unhappiness with New Delhi’s decision to saddle medical device imports with an additional health cess.

While India has said it won’t roll back the tax, other concessions are expected to be fiercely pushed by US Trade Representative Robert Lighthizer when he visits New Delhi early next week for talks, sources say. India is still considering allowing a trade margin policy for specific high-value items like coronary stents, they confirmed.

As part of the Budget, Finance minister Nirmala Sitharaman had announced a 5 per cent health cess on import of medical equipment, a move would make imported medical devices costlier for patients until the perceived rise in domestic production kicks in, industry experts say. The health cess would be imposed on imports of medical devices, except those exempt from basic Customs duty.

Price cap a worry

During his Washington DC visit in November, Commerce and Industry Minister Piyush Goyal had met Scott Walker, president of AdvaMed, the American medical device trade association. AdvaMed, considered close to Trump’s political camp, has repeatedly lobbied with Washington DC to push India to dismantle its price cap regime for crucial medical devices.

India’s medical device imports continue to rise at a fast clip as overall price of medical equipment sees a gradual decrease, making operations more accessible. But despite remaining the largest source of shipments, US-made devices have continued to lease market share in India to cheaper alternatives from other nations. Imports from the US hit a high in 2016-17, but have stagnated at a lower level since. Of the $1.7 billion worth of medical devices imported into India in 2018-19, products from stateside had a 19.8 per cent share, down from 23.7 per cent, a year back.

Trade deal planned

India had earlier prepared plans for a mutually acceptable “comprehensive trade package” that provides an amicable solution to major grouses from both sides, according to a senior trade negotiator. This is expected to be the first step to create a full-fledged trade deal, which has been New Delhi’s priority since leaving the proposed Regional Comprehensive Economic Partnership deal last year. But there is still time in talks on a free-trade agreement, the negotiator added.

Washington DC also wants India to reverse the higher duties placed on 29 key (mainly agricultural) imports from the US. New Delhi had announced higher tax by up to 50 per cent on import of high-value apples, almonds, walnuts and wines.

The new taxes are estimated to rake in an estimated $240 million in additional taxes, and India has claimed the amount was 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.

A bilateral trade deal has remained a key US demand, which has been repeatedly rebutted by India, up until earlier this year. With Prime Minister Narendra Modi by his side, Trump had promised a trade deal with India “very soon”.

In return, the US has offered to step back from its aggressive posturing on ‘reciprocal taxes’. While the US has not targeted India specifically yet, it has dropped repeated hints saying tariffs on Indian imports could be raised in line with those on Chinese products.