The story so far: U.S. Trade Representative Katherine Tai and India’s Commerce and Industry Minister Piyush Goyal this week co-chaired the U.S.-India Trade Policy Forum , which was reconvened after a gap of four years. Resolving to take economic ties to the “next high level” , the two sides exchanged views on ‘potential targeted tariff reductions’ and decided to activate the forum’s working groups on agriculture, non-agriculture goods, services, investment, and intellectual property.
What is the agreement on digital services?
Both countries said they had reached an agreement on a transition from the existing Indian equalisation levy on digital services as part of the new multilateral tax solution under the OECD/G20 Inclusive Framework. This, the U.S. Treasury Department said, would allow the U.S. to terminate measures adopted in response to the Indian equalisation levy.
Editorial | Breaking the ice: On India-U.S. trade ties
Why is the resumption of trade talks significant?
The resumption of the Trade Policy Forum and the decision to activate the working groups augur well for trade ties to the extent that the two sides now have a mechanism to come to grips with their differences, lay out their positions and work towards reaching negotiated compromises. The aim is to arrive at solutions to multiple contentious issues.
What are the major issues dogging the ties?
A February 2020 article by Alyssa Ayres of the New York city-based Council on Foreign Relations, titled ‘A field guide to U.S.-India trade tensions’, lists eight key areas of disagreement. The newest, and in many ways one of the most significant roadblocks, has been the size of the trade deficit that the U.S. faces in its trade relationship with India, an issue that the Donald Trump administration made into a central element of its approach to overall trade policy. In a bid to narrow the deficits, which for merchandise trade with India stood at about $23.5 billion in 2019, the Trump administration had in 2018 imposed new tariffs on steel and aluminium imports from several nations, including India. The Indian Government, in turn, announced retaliatory tariffs that it then subsequently operationalised after the U.S. removed India from the list of developing countries eligible for favoured access under its Generalized System of Preferences (GSP). The tariff increases are still in place, and on India’s stand seeking restoration of the GSP, the U.S. has sought to toss the onus on a decision to its lawmakers in Congress.
The other major sticking points pertain to agricultural products, an area where the differences have appeared most intractable and abiding over time, including the U.S. demand for market access for its dairy products, and intellectual property rights, which is again one of the oldest sources of friction. It harks back to the U.S. first putting India on its ‘priority watch list’ of countries with serious deficiencies in protecting IPR under its Special 301 report. Other issues are investment barriers, Indian price controls on medical devices, the digital economy and its related taxation issues, and vitally for New Delhi, the U.S. approach to visas for India’s professionals and skilled workers in the services sector.
How have the two sides sought to reduce friction?
India’s decision to join the OECD/G20 Inclusive Framework on adopting a common multilateral approach to taxation has helped engender a solution to one of the roadblocks: the government’s decision to transition the equalisation levy it imposed on e-commerce transactions over time gives the U.S. side room to withdraw or substantially lower some of the tariffs it had raised as a response. The ministerial-level talks also led to some decisions to ease access for some select agricultural products from both sides. Separately, India has adopted the Trade Margin Rationalization approach to price regulation on certain medical device products as a means to protect both consumer and supplier interests, and this has been acknowledged by Washington.