US-India trade deal: Efforts on to end impasse

US-India trade deal: Efforts on to end impasse

Ahead of his bilateral meeting with Modi, US President Donald Trump had indicated on Tuesday that the two countries would announce a limited trade deal soon before sealing a broader trade deal (perhaps a free trade agreement).

Persisting differences over US demand that India scrap or cut duties on seven ICT products — including high-end cell phones and smart watches — sharply, remove price caps on medical devices like stents and offer greater market access in agriculture and dairy are learnt to have delayed a bilateral trade deal. A limited deal was expected to be announced after Prime Minister Narendra Modi’s meeting with US President Donald Trump in New York on Tuesday.

While the US has been seeking greater concessions from India, it’s reluctant to respond commensurately with its offers and address India’s concerns; instead, it’s still using the issue of its trade deficit with India to extract more from New Delhi, a source told FE. “Unless, these sticky issues are addressed, a meaningful deal that would benefit both the parties will be very difficult to clinch,” the source said.

Ahead of his bilateral meeting with Modi, US President Donald Trump had indicated on Tuesday that the two countries would announce a limited trade deal soon before sealing a broader trade deal (perhaps a free trade agreement).

Commerce minister Piyush Goyal had also flown to New York to have talks with US Trade Representative Robert Lighthizer.

Earlier this month, Goyal had said India was in talks with the US on a trade package with an “open mind”. Negotiations had been going on between the two sides for months now, without much breakthrough.

The US wants India to scrap/cut “not justified” tariff on ICT products (20%), motorcycles (50%) automobiles (60%) and alcoholic beverages (150%). It is seeking better trade balance with India through greater market access in agriculture and dairy products. Similarly, Washington wants New Delhi to remove price caps on medical devices like stents, a move that will help American companies like Abbott. The US has also expressed concern over what it thinks India’s “frequent changes” to e-commerce FDI rules, and data localisation.

India fears that it could lose as much as $3.2 billion a year if it scraps duties on the seven ICT products to accede to US demand. New Delhi had told Washington that its revenue loss would be much higher than what US offered it under GSP (roughly around $200 million a year) and that only China and Hong Kong would be the biggest beneficiaries of the move and the US will hardly gain. This is because the US made up for only 2% (or $415 million) of India’s imports of these seven products worth $20.5 billion in FY18. But the US remains unimpressed.

For its part, India is pitching for an exemption from the extra duty imposed by the US on steel and aluminium, resumption of duty-free export benefits for some Indian goods under the so-called Generalised System of Preferences (GSP) as well as greater market access for its products in sectors ranging from agriculture, automobile and auto components to engineering.

After the Modi-Trump meeting on Tuesday, India’s foreign secretary Vijay Gokhle hinted at the complex nature of the negotiations, given that the package involves industries and jobs on both sides, although he maintained that both the sides achieved significant progress and narrowed down differences. He said: “We are looking for a fair and reasonable trade deal in which our request for market access is secured while also addressing the trade deficit issue raised by the US.”

India’s exports to the US, its largest market, touched $52.4 billion in 2018-19, while imports were to the tune of $35.5 billion. Its trade surplus with the US has been shrinking in the past two years, as it has stated importing oil and gas from the largest economy, something that India has been highlighting.

According to the US government data, New Delhi’s trade surplus with Washington eased to $21.3 billion in 2018 from $22.9 billion in 2017. In contrast, China’s trade surplus with the US widened further to a record $419.2 billion last year from $375.6 billion in 2017, despite the tariff war between the top two economies. The drop in India’s trade surplus is important, given that the US’ overall goods trade deficit zoomed further in 2018 to $878.7 billion from $795.7 billion a year before. India’s surplus with the world’s largest economy stood at $24.4 billion in 2016.

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