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India-US digital trade is going through a bad patch. USTR Tai’s visit can begin fixing it

The Print - 15 November 2021

India-US digital trade is going through a bad patch. USTR Tai’s visit can begin fixing it
By Mohit Kalawatia

On 22 November 2021, Ambassador Katherine Tai will be on her maiden visit to India as the 19th United States Trade Representative. During her trip, she will hold talks with her Indian counterpart Piyush Goyal, the Minister for Trade and Commerce. Discussions on technology-related issues are expected to be a key part of the agenda. Talks between the two countries may also focus on digital trade—the fastest-growing segment of international commerce—that includes the exchange of goods and services. There are encouraging signs that a comprehensive look at the India-US bilateral trade relationship is on the horizon. Both sides have agreed to reinvigorate the Trade Policy Forum, which was established in 2009 after a pause of four years.

Despite the magnitude of digital trade flows, the countries have been unable to arrive at a common understanding on how to regulate businesses. Critical issues on which both countries differ include custom tariffs on electronic transmissions, safe harbours for Internet intermediaries, and data localisation.

Customs duties on electronic transmissions
Under the World Trade Organisation’s (WTO) Work Programme on E-Commerce, member countries—including India—have agreed not to impose customs duties on electronic transmissions. The duty will act as a tax on all digital goods provided by foreign players to Indian users and will apply only to the digitised delivery of services or products like e-books and music, and not to goods that are traded over the Internet and delivered in physical form.

However, in October this year, India’s Permanent Representative Brajendra Navnit in Geneva asked the WTO to revisit the moratorium on electronic transmissions. According to him, the international consensus not to levy custom tariffs disproportionately impacts developing countries; for instance, in terms of revenue foregone.

Furthermore, concerns have been raised by Indian trade negotiators on new technological developments such as 3D printing, which allows countries to transmit a variety of physical goods digitally. That is, technological advancements in 3D printing could potentially create an uneven playing field when importing a product in physical form and electronic (digital) format. Let’s take the footwear sector as an example. Importing footwear will attract a tariff of 35 per cent, while its digital file may not attract any duty. Meanwhile, the US has asked its trading partners to refrain from imposing such duties on goods that can be delivered digitally.

Indian and US trade negotiators will have to craft an out-of-the-box approach that can balance the need for the former to maintain its policy independence, whilst ensuring that digital trade remains tariff-free. As India’s leading innovators achieve significant efficiencies in areas such as health care, retail, and financial services, a tariff-free trade environment becomes essential for them to grow beyond local borders. In this context, both countries can consider creating a negative list, cataloguing products on which the moratorium is not applicable. This will allow countries like India to retain the right to impose duties on digital goods that were not envisaged to be governed, such as 3-D printed products.

 source: The Print