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India-US ‘limited’ deal to cover just 15% of trade – Details

Financial Express - 27 July 2020

India-US ‘limited’ deal to cover just 15% of trade – Details

India and the US have inched closer towards hammering out a “limited” deal that could cover annual trade of over $13 billion, or roughly 15% of bilateral shipment, which also includes a complete restoration of duty benefits for New Delhi under the so-called Generalised System of Preferences (GSP).

However, if an agreement is reached quickly on widening the coverage, the initial deal could take the shape of a preferential trade agreement, amounting to a much higher value of annual trade.

India may consider opening up its dairy and poultry sectors partially if it gets a good deal from the US in textiles and garment and pharmaceuticals. In garments, for instance, the US import duties (for India) currently range between 16.5% and 32%.

This deal is expected to be almost evenly balanced in terms of trading value for both the partners and could be followed by talks on a potential free trade agreement (FTA).

As part of the limited deal, India will likely reduce tariffs on high-end bikes like Harley Davidson, pledge greater market access in farm products, including cherry, and sweeten its initial offer on easing price caps in medical equipment, a source told FE. India is willing to apply trade margin on coronary stents and knee implants at the first point of sale (price to stockiest), instead of imposing it on the landed prices, as was proposed by it initially, to make it more attractive for American companies like Abott.

India is also willing to resolve certain non-tariff measures such as certification process for some dairy products and market access in alfalfa hay and pork.

Commerce and industry minister Piyush Goyal last week suggested that both India and the US could clinch a quick trade deal. “We should be able to get the quick trade deal out of the way after a few more calls. India and the US must sit down to negotiate a robust FTA but before that we can even look at an early harvest trade agreement for 50-100 products,” Goyal said.

If the US agrees to roll back its extra tariff of 25% on Indian steel and 10% on aluminium, New Delhi will lift retaliatory steps and scrap punitive duties on 29 American goods, including farm items like almond, apple and walnut. This is expected to augur well for the Trump administration before the presidential elections in November.

However, negotiations on the American demand for India to scrap duties on seven ICT products, including high-end phones and smartwatches, are yet to be concluded, the source said. New Delhi had earlier expressed its inability to abolish the tariff on such products on grounds that it would only benefit third parties with far greater share in supplies to India (like China) than the US. Also, New Delhi had estimated that any such move would mean a potential customs revenue loss of $3.2 billion or more a year. Instead, India offered to trim tariffs on those ICT products which could potentially benefit the US more, without causing it such a big revenue loss.

The restoration of GSP benefits will mean dutyfree Indian supplies of over $6 billion a year (the tariff forgone for the US was $240 million in 2018).

The US has been pressing India to abolish/cut “not justified” tariff on 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.

Stringent US patent protection laws and various steps by the Food and Drug Administration (FDA) have dented India’s exports of pharmaceutical products. This is among the important non-tariff barriers that India wants the US to remove.

The “limited deal” was earlier expected to be announced after Prime Minister Narendra Modi’s meeting with US President Donald Trump in New York on September 24 last year. However, differences over certain sticky issues caused the delay.

India’s trade surplus with the US has been shrinking, 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 $24.3 billion in 2016 to $23.3 billion in 2019. According to the Indian government data, imports from the US stood at $35.7 billion in FY20, up 0.3% even though overall merchandise imports dropped by 7.8%. Key purchases include mineral fuels and related items ($8.3 billion), gem and jewellery ($6.2 billion) and capital goods ($4.7 billion). India’s goods exports to the US stood at $53 billion, up 1.3% from a year before. Major exported product segments include gem & jewellery ($9.3 billion), pharmaceuticals ($6.3 billion) and garments ($4.2 billion).

 source: Financial Express