Video Summary

[RSTV The Big Picture] India – US Trade Relations

The US remains the top trading partner for India in terms of trade in goods and services followed by China. The bilateral trade between the US and India is approximately 62% in goods and 38% in services.
By IT's Video Summary Team
March 02, 2020

Contents

  • Introduction
  • India- US trade ties status
  • Trade contentions between India and US
  • How can India address the issue of trade surplus with US?
  • Trade subject during President Trump’s visit to India
  • IT’s Input
  • Diplomats preparation for visits during conflicting situations
  • Issues that needs to focus from India
  • What are the biggest challenges?
  • Is Wuhan COVID- 19 crisis an opportunity for India?
  • Way Forward

India – US Trade Relations

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Introduction

India sought to play down American President’s remarks that India is not treating the US very well on the trade front insisting, that it was important to understand the context in which US President made the comments. India said that it does not want to create artificial deadlines. Meanwhile, the external affairs spokesperson said that India-US relationship is progressing from strength to strength and the trade has already been growing at more than 10% per annum for the past two years.

India- US trade ties status

Overall Relationship

  • The overall status of trade ties has become very strong. Politically, the both countries do a lot together and strategically there is lot of convergence in the Indo-Pacific regions.
  • In Defence cooperation, India has contacted to buy almost 18 billion of defence supplies from the US. Another 3 billion worth of Defence supplies are in the pipeline.

Trade Relationship

  • In the last 15 years, trade has increased ten times. US is India’s largest trading partner which stands at 160 billion dollars and it’s increasing by almost 10% every year.
  • India has trade surplus with US. In 2018, it was 26 billion USD and now it’s about 21 billion USD.
  • Bulk of India’s exports go to US.
  • In the last two years, India has contracted to buy 7 bn USD worth of oil and gas from the US.
  • India is in the list of top ten countries with which US has trade deficit.

Trade contentions between India and US

  • There many sticky issues whether it’s trade, tariffs, subsidies, data localization, intellectual property (IP) and mango imports.
  • Dairy sector is extremely difficult and tricky issue. All these issues and their solution will take time.
  • The entire gamut of these trade agreements do not cover the labour laws like H- 1B visas.

How can India address the issue of trade surplus with US?

  • The US being the topmost market destination for India scores for India’s trade surplus with the US.
  • It is not currently realistic to evaluate a bilateral trade relationship in terms of balance of trade. Today we are talking about the global value chain, so when the trade is only looked with the above perspective, the trade is not looked in the terms of value addition which is happening from one country to another country.
  • In 2018, the topmost export item to US was Gems and Jewellery etc. with 11billion USD The same item had been imported as top most item with 7 billion USD. The surplus of 4 billion USD is subject for analyzing that does all 4 bn USD has gone from India? Does India pair or not for labour or all the products used in the exports have been produced within India? Etc. It is not true, the diamonds and other things may have come from somewhere else for which India would have paid to Africa or so. These kind of factors, now need to be taken into consideration.
  • The technology is another important trade area. India got lot of investments from US which brought technology here.
  • There subject of multilateral process which discussed in the World Trade Organizations (WTO) in Geneva would be another area of trade which can be very important part between PM Modi and President Trump.

Trade subject during President Trump’s visit to India

  • For India, the demand of the Generalized System of Preference (GSP) benefits for supplies from India would be restored because the US has removed that.
  • The US imposed tariffs on Aluminum and Steel supplies from India to the US. India’s argument on that part has been that if India is strategic partner of US then US cannot impose such tariffs on national security grounds.
  • The US has removed India from the ‘developing country’ classification barring subsidies for goods and imposing countervailing measures.
  • It is clear, the US is taking a hard stance in trade deals and trying to push for maximum advantages for itself.
  • The most important thing is that even if the trade deal doesn’t work out during the visit of American President, the discussions will go on for limited or bigger agreement.
  • The other dimensions of the India- US relations like defence, political and strategic bond are very important and continuing.

IT’s Input

GSP Benefits

  • U.S. trade preference programs such as the Generalized System of Preferences (GSP) provide opportunities for many of the world’s poorest countries to use trade to grow their economies and climb out of poverty.  
  • GSP is the largest and oldest U.S. trade preference program.
  • It wasestablished by the Trade Act of 1974.
  • It promotes economic development by eliminating duties on thousands of products when imported from one of 119 designated beneficiary countries and territories.
  • GSP promotes economic growth and development in the developing world.
  • It promotes sustainable development in beneficiary countries by helping these countries to increase and diversify their trade with the United States
  • The GSP program provides additional benefits for products from least developed countries.  The list of products eligible for duty-free treatment when imported from GSP beneficiaries can be found here.

Diplomats preparation for visits during conflicting situations

  • All visits have the positive elements on the challenges because the way it works out.
  • Each government and its bureaucracy is dealing with many issues and many priorities but when a high level visit takes place, both system concentrate in the issues relevant to the two countries and both try to generate pressure on the other to extract the maximum for themselves.
  • So, some of the issues get progressed and some of the issues do not.
  • We have to see what is the maximum advantage that any country is able to get. For example, during the visit of American president Mr. Bush in 2006, the whole effort was to make some progress on the civil nuclear cooperation agreement and it was achieved.

Issues that needs to focus from India

  • The area of cooperation is technology such as Artificial Intelligence, Robotics, Machine Learning, Automation, Telecommunications and so on.
  • No country shares their value addition technology because manufacturing the value addition comes only when a country has a deep grip in manufacturing. That means, if the country owns the intellectual property and the R& D has been done then the country is ready to cash that.
  • India has also need to be develop its R&D base and then build its manufacturing on that base.

What are the biggest challenges?

  • The imposition of tariffs on Aluminum and Steel is under security exception which is Article 21 of GATT is very rarely used. Given its nature, the jurisprudence of WTO will not enter into interpreting the use of this article and that is what exactly happened.
  • Bilaterally it’s very difficult to negotiate any trade agreement with the US where you would get on a full reciprocity the desired things. The US has very fixed position on certain things like e-commerce, data, intellectual property, environment, labour etc.
  • The current US President Trump won his election on the agenda of ‘protectionism’. Therefore, he cannot move away from that point. Mr. Trump cannot be seen delivering something to any country including India showing that he has stepped back from his election promises.

Is Wuhan COVID- 19 crisis an opportunity for India?

  • The China’s value chains are being disrupted from the COVID- 19 crisis.
  • Aside from that, even if China wouldn’t have facing this crisis then also US wants to meets its technological challenge that China is posing to the Unites States.
  • Initially, the US started the process of bringing the China in WTO and once it entered the WTO, it took advantage of WTO rules and regulations to enhance market access to itself and to enhance manufacturing.
  • Currently, the US is canvassing with countries not to use five Huawei for 5G technology. US is also putting pressure on US universities’ laboratories for not partnering with Chinese entities.
  • The US industry is beginning to realize that they shouldn’t have the kind of stake in China in terms of production as they have done so far.
  • But as of today 60% of those who moved out of the China went back to US and another 30 % went to Vietnam and other countries. Very few have come to India.
  • India will also have to examine as to what role do its wants to play in the disrupted and new value chain arrangements that are coming into place. India also need to see as to how much it is need to do as part of an integrated global value chain.
  • Therefore, if that is mapped out clearly and a very concerted effort made in India to take advantage of that process and the decoupling to some extent that is happening between US and China in production processes, there will certainly be opportunity for India

Way Forward

Lessons have to learnt from the Wuhan Crisis. First, there was not no clear assessment of the risks inherent in the global value chain like concentrating manufacturing in one country. India has become so dependent on Active Pharmaceutical Ingredient (API) from China, that now it has to revive its own API manufacturing capacity. The lesson learnt will avoid such loss to India as well as other countries.

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