India bats for inking limited trade deal with US during trade meet

Goyal raises totalisation issue during talks with Ross, also expresses concern over Indian exports being barred due to child labour issues

India has pushed for signing a limited trade deal with the US along with the possibility of a free trade agreement (FTA).

A teleconversation between Commerce and Industry Minister Piyush Goyal and his US counterpart Wilbur Ross on Thursday saw both sides noting the progress made so far in talks.

“There was a desire expressed to conclude this initial limited trade package and recognising the complementarities of the India-US bilateral trade, (the two sides) discussed the possibility of an FTA,” said a statement by the Commerce Department.

However, officials say talks on the proposed trade deal with the US will pick up only after the American presidential elections conclude in November.

India also flagged the pending US-India Social Security Totalisation Agreement, to avoid double deductions from the income of employees working in each other’s countries, and allowing short-tenure Indian workers in the US to get back billions of dollars in social security deposits there.

India also raised its concerns on 24 Indian products being barred from the US government supply contracts due to them being America’s Trafficking Victims Protection Reauthorization Act list, which designates them as ‘child labour sectors’. Ross offered to set up meetings with relevant US government officials on both issues.

Goyal also raised the issue of US ban on import of wild-catch shrimp from India on the premises that fishing practices followed in India were non-compliant with American regulations to protect sea turtles. Ross agreed to facilitate a discussion between the officials of the ministries and departments concerned of the two nations in this regard.

Wait for FTA

The US heads into its presidential elections on November 3. Despite the raging pandemic, nationwide elections will not be postponed, say experts. Chances of the much publicised trade deal — initially championed by US President Donald Trump and subsequently pushed by Prime Minister Narendra Modi — being signed early on remain slim, confirm officials.

While both sides have committed to continue talks, egged on by the threat of Chinese dominance in manufacturing and trade flows, the Covid-19 crisis and different policy concerns of both nations have widened the gap in talks.

A step-by-step reduction of import duties on high-value US agricultural products, trade margin policy for medical devices, and a promise to continue talks on reducing price restrictions on American technology goods remains India’s basic proposal for trade talks with the US. This is also conditional upon the US backing off from its tough stance on digital services taxes imposed by India.

Last month, senior policymakers had stressed on expediting talks with the US as tension across the Ladakh border led to a massive call for boycotting Chinese goods. On the other hand, with major chunks of the global trading economy being carved up by regional trading agreements, New Delhi is currently scouring the map for new export destinations, said a senior trade policy advisor to the commerce department.

On its part, the US also signalled it was open to restoring trade benefits under its Generalized System of Preferences (GSP) scheme to India, provided it got a ‘counterbalancing proposal’. Reinstatement of GSP benefits has remained a key demand from New Delhi, but in February, the US had classified India as a developed economy, ineligible for benefits given to developing countries. US Trade Representative (USTR) Robert Lighthizer, Trump’s point man on trade, told members of the US Senate Finance Committee that trade talks with India are ongoing.

India’s total benefits from GSP tariff exemptions amounted to $260 million in 2018, according to the data from the Office of the USTR. However, this was only a small portion of India’s overall exports to the US in the same period, which stood at $51.4 billion. Officials haven’t heard much from Lighthizer since he cancelled his visit to India during Trump’s visit to India in February. It has been a similar story since last month as well.

The US wants India to slash its tariff rates and further open up its markets to American products. Trade talks have oscillated back and forth on these issues over the past two years. The differences had remained too large to bridge despite a push by both leaders. Sources confirm that talks had entered a frenzied pace just before the Howdy, Modi! event in Houston, Texas, in September 2019 as well as the Namaste Trump tour in Ahmedabad in February.

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 remains under pressure to showcase his ability to tame major trade partners before his term ends and may make a surprise move before November, say experts.

Issues galore

“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.

India has offered an olive branch with respect to agricultural products. Trump’s core constituency of American farmers has lost its 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 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, said sources.

The US wants India to reduce import duties on certain information and communication technology (ICT) products, such as high-end mobile phones and smartwatches, which may make Apple iPhone products cheaper. While New Delhi had earlier considered the proposal, talks have been made difficult on the quantum of reduction demanded, said officials.

ICT products make up a minuscule $407 million, of the $35.54 billion of total inbound shipments from the US. However, US Commerce Department officials have zeroed in on the category as a prime growth puller.

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.