New Delhi hopes to broker peace in full-blown tariff war

This post was originally published on this site

In April 2014, ahead of Narendra Modi’s landslide victory, outgoing US ambassador to India Nancy Powell had called for both India and the US to convene a “Track 1.5 event” in the first 100 days of the Modi government to resolve contentious bilateral trade issues, underlining the worsening trade ties between the two countries.

In a “Track 1.5 event”, both official and non-official players work on resolving conflicts.

Amid the otherwise robust bilateral relationship between the two strategic partners, even under former president Barack Obama and prime minister Manmohan Singh, trade ties remained significantly strained. Washington was dissatisfied with India’s intellectual property rights (IPR) regime amid indications that it may list India as a ‘priority foreign country’ in its Special 301 report—a title reserved for the worst IPR offenders—which could invite US sanctions.

The US had already taken India to the World Trade Organization (WTO) challenging a ban on import of US poultry products and India’s move to make domestic content requirements mandatory in its solar energy programme, both of which it subsequently won. In turn, India had taken the US to the WTO challenging US duties on Indian steel products that threw up a mixed result for both sides. They also fought over high visa fees and Monsanto’s high royalty over cotton seeds.

After Donald Trump took office in January 2017, trade policy took centre stage with his “America First” approach. India, however, heaved a sigh of relief after Trump abandoned Trans-Pacific Partnership (TPP), pioneered by the Obama administration, as TPP was supposed to set high standards in goods and services that India, with its level of development, would have been unable to match.

However, Trump soon started calling India a “tariff king” and sought reciprocity in tariffs, disregarding the multilateral trade rules that allow developing countries like India greater flexibility in setting tariffs. Trump’s repeated rhetoric about a high tariff regime citing India’s 75% tariffs over Harley-Davidson bikes forced New Delhi to substantially reduce customs duty on the iconic American motorcycle to 50%. However, it soon realized it would be difficult to satisfy Trump.

In March 2018, the US unilaterally hiked duties on steel and aluminium imports from major trading partners, including India, on national security grounds and, a year later, it scrapped duty benefits on $5.6 billion of exports from India, alleging that New Delhi had introduced a “wide array of trade barriers that create serious negative effects on US commerce”.

The Generalized System of Preferences (GSP) programme allowed duty-free entry of around 1,900 products from India into the US market, benefiting exporters of textiles, engineering, gems and jewellery, and chemical products.

While American dairy companies were upset with Indian import restrictions, its medical devices industry opposed Indian price ceilings on stents and knee caps. Both sides had started negotiating a trade package beginning April 2018 after the US trade representative said that it was reviewing India’s GSP eligibility. However, talks collapsed over what India alleged to be “disproportionate demands” by the US, following which India imposed retaliatory tariffs on 29 US products, including almonds and fresh apples, after deferring its implementation for almost a year.

However, talks for a mini trade deal continued and is expected to cover tariff-related concessions for US farm produce, especially dairy items, pricing of pharma products, such as stents and knee implants, and information and communication technology products. In return, Washington is expected to restore benefits accorded to Indian exporters under the GSP. Both sides may also remove the tit-for-tat tariff hikes after the US raised steel and aluminium tariffs. However, different levels of expectations have held up the mini trade deal, and India now hopes to sign it after the US presidential elections are over.

Jayant Dasgupta, former Indian ambassador to the WTO, said a Joe Biden administration may withdraw the tariff hikes on steel and aluminium from partner countries, barring China, and may restore GSP benefits for India. . “It does not mean they will be soft or considerate to India, but the harsh rhetoric of calling India a ‘tariff king’ may be absent. It will not be easy for India, but it will not be nasty or unpredictable under a Biden administration,” he said.

Subscribe to Mint Newsletters

* Enter a valid email

* Thank you for subscribing to our newsletter.