India hits back at the U.S. with tariffs

Centre conveys decision to raise import duties on 30 items to WTO, may further suspend concessions

In what could signal escalating trade tensions between New Delhi and Washington, the Centre has written to the World Trade Organisation (WTO) notifying its decision to increase import tariffs on 30 items from the U.S. amounting to $240 million, in retaliation against tariffs imposed by the latter on aluminium and steel imports.

The move is significant as it comes a day after Commerce Minister Suresh Prabhu returned from the U.S. and just weeks ahead of further talks between the two countries on the issue.

“India hereby reiterates its decision to suspend concessions or other obligations notified to the Council for Trade in Goods on 18 May 2018… that are substantially equivalent to the amount of trade affected by the measures imposed by the United States,” the Centre said in the notification to the WTO’s Council for Trade in Goods. “The proposed suspension of concessions or other obligations takes the form of an increase in tariffs on selected products originating in the United States, based on the measures of the United States.”

“India reserves its right to further suspend substantially equivalent concessions and other obligations based on the trade impact resulting from the application of the measures of the United States,” the notification added.

U.S. President Donald Trump, in March, signed an order imposing a 25% tariff on steel imports and a 10% tariff on aluminium imports, citing national security as one of the key reasons behind the move. The Indian government repeatedly requested an exemption from these tariffs as India did not pose a security threat to the U.S., but to no avail. India has also taken the U.S. to the dispute settlement mechanism in the WTO over the matter.

Surprising move

The decision to begin retaliatory measures against the U.S., however, is particularly surprising because Commerce Minister Suresh Prabhu, on his return from the U.S. on Friday, indicated that the two countries would try to resolve their issues through dialogue.

“If they wanted to take fresh action, they would not agree to talks and we would not either do the same,” Mr Prabhu told reporters on Friday. “Instead of measures and counter-measures, we decided to talk and resolve it out.”

The notification to the WTO was, however, dated June 13, before the Minister made his comment.

“The situation between the U.S. and India should not be viewed as a trade war just yet,” Rishi Shah, Economist at Centre for Digital Economy and Policy said. “A possible continuation of such steps from both sides may result in more friction on the trade front. However, it must be kept in mind that the last fortnight has seen ratcheting up of trade tensions in the West and also with China as the US has imposed tariffs. Given the less than optimal nature of such policies, it must be assessed how sustainable they may be.”

$240 million in duty

The removal of concessions on U.S. imports — on items such as chickpeas, lentils, almonds, apples and some metal products — will likely result in a duty collection of $240 million, according to the Centre. This, according to the government, was in keeping with the duty increase of $241 million due to the U.S.’ actions.

“India wishes to clarify that suspension of concessions shall be equivalent to the amount of trade affected by the United States’ measures,” the notification said. “To this end, India reserves the right to adjust the specific products for which suspension of concessions is effectuated, and its right to adjust the additional rate of duty imposed on such products.”

Notably, one of the items on which the import concessions have been dropped pertains to high-capacity motorcycles such as those manufactured by Harley Davidson, duties on which were one of the sore points mentioned by Mr. Trump about India’s tariff policy.

“It’s some bit of posturing and some amount of negotiation will happen,” Abhishek Jain, Tax Partner at EY India said. “I don’t think it is as big as what is happening between the U.S. and China. Of course, this move will make these items more expensive for Indian importers.”