Upcoming USTR visit: Chance for India and US to fix thorny bilateral issues

While the agenda for Katherine Tai's visit has not yet been disclosed, the two sides are likely to discuss issues on market access, including tariffs, by reconvening India-US Trade Policy Forum

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Indivjal Dhasmana Shreya Nandi New Delhi

6 min read Last Updated : Nov 10 2021 | 4:59 PM IST

US Trade Representative (USTR) Katherine Tai and her deputy Sarah Bianchi will visit India on November 22. While the official agenda for her visit has not yet been disclosed, the two sides are likely to discuss issues related to market access, including tariffs. They would be doing this by reconvening India-US Trade Policy Forum (TPF) to bolster trade and investment flow between both nations.

Established in 2005, the India-US TPF last met in October 2017. It was then replaced by negotiations between the two sides on a trade deal. With the Biden administration now insisting on resolving irritants first, rather than going for a mini deal, the focus on TPF has emerged once again.

US-India Strategic Partnership Forum (USISPF) president and chief executive officer (CEO), Mukesh Aghi, said the upcoming TPF would be an opportunity for trade officials of both the nations to reset the trade agenda. He said Tai and Bianchi's travel to New Delhi signifies the seriousness with a focus on trading ties.

"We look forward to the parties agreeing to a future work plan to strengthen intellectual property right protection and enforcements, reduce technical barriers to trade, stabilise tariffs and enhance good regulatory practices. We believe progress in these areas will serve as a solid foundation for larger future trade agreements that will benefit workers of both countries," he said.

The US is the biggest destination for India's exports, though its outbound shipments to India have been much lower than to Ch?ina. For instance, while India's exports to the US amounted to $29.75 billion, those to China were worth only $16.42 billion during the first five months of FY22. But when it comes to exports to India, the share of the US was much lower, at $16.42 billion, than of China, at $34.15 billion, during this period.

However, the US was India's largest trading partner, slightly bigger than China during April-August 2021-22, even though China also became the biggest trading partner for some years, for instance during 2020-21 and 2017-18 (see table). In this regard, the US has been raising the issue of market barriers in India such as high tariffs, while New Delhi has also been taking up this matter with Washington, for India's exports to the US.

The US believes the Indian regulatory regime is ‘non-transparent and unpredictable’. According to the US Department of Commerce’s International Trade Agency (ITA), US exporters and investors face non-transparent and often unpredictable regulatory and tariff regimes, with?some goods and services having limited access to the India market.??

"India has the highest average applied tariff of any G20 country, and some of the highest bound tariff rates among World Trade Organization members," it had flagged last month.

The US has been calling for lower import duties on automobiles and greater market access for medical devices, agriculture and dairy products. Former US President Donald Trump had also called India 'tariff kin', accusing it of imposing steep tariffs on American products. In fact, trade tensions between the two nations escalated for a while in 2018.

America's main concern against India has been intellectual property rights for decades. India has been figuring in the watchlist of the US Special 301 report, which identifies intellectual property issues in trade.

Then there are complaints from the US that India has been manipulating its currency to raise its exports and discourage imports. In April this year, the US Treasury Department had placed India on the watchlist of currency manipulators--something that was even done in 2020.

However, India has its own issues with the US. According to Indian exporters, the rate of rejection of food product exports to the US is very high, with eco-labelling norms, compliance with sanitary and phytosanitary (SPS) rules, unreasonable packaging and labelling being some of the strict requirements for exports to the nation.

Food product exports are further affected due to difficulties faced by farmers in complying with issues related to pesticides in the production and trade of farm produce. Mango exports to the US involve high certification costs, and a complex process to access the markets that include a large number of agreements and protocols. These include costs associated with the irradiation process, exporters complain.

India’s horticultural exports have been adversely affected by SPS standards in the US. The higher number of rejections of consignments and notifications are due to reasons such as pesticide residues, microbial contamination and non-compliance with other mandatory technical parameters.

India has also been demanding resumption of benefits under the American Generalised System of Preferences (GSP) scheme, and exemption from high import tariffs on steel and aluminium.The Trump administration had, in 2019, removed India from GSP scheme, a special trade treatment for developing countries, due to significant trade barriers in India. India was the biggest beneficiary of GSP in 2018. Over a tenth of US merchandise imports from India entered duty-free under the scheme. These exports, amounting to $6.3 billion, consisted of chemicals, auto parts, tableware etc. GSP removal meant imposition of US tariffs, which ranged 1-7 per cent on the top 15 GSP imports. Shortly after the US move, India had imposed retaliatory tariffs against the US, following which Washington filed a dispute at the WTO.

Then, there is the issue of equalisation levy imposed by India. Earlier this year, USTR had proposed retaliatory action under Section 301 against India due to this levy. India introduced a six per cent equalisation levy for digital advertising services in 2016. Later, in April 2020, it widened the scope to impose a 2 per cent tax on non-resident e-commerce players. India has so far collected over Rs 1,600 crore by way of the levy this fiscal--almost twice last year's figure.

However, the issue could be resolved now, after 136 nations under the aegis of OECD agreed to a global agreement to ensure that large multinational enterprises (MNEs) with no permanent establishments in the countries in which they operate pay tax in those jurisdictions. India will have to withdraw the levy once the deal comes into effect from 2023 since G-20 nations have endorsed the agreement.

Table: India's trade with the US and China ($ billion)