India has agreed to remove the retaliatory tariffs on certain products including chickpeas, lentils, almonds, walnuts, apples, boric acid and diagnostic reagents.
New Delhi
When the US Trade Representative (USTR), adviser to the President of the United States–on trade issues and leading international trade negotiations–takes up discussions late into the night on high priority with the Indian Commerce Minister for building an expansive relationship of bilateral trade, it wouldn’t be an exaggeration to say that the world’s largest democracy and one of the fastest growing economies has truly taken its place on the high table of global trade negotiations. This is just a microcosm of the calibration witnessed in Washington between Prime Minister Modi and US President Joe Biden that shows up in a historic resolution of six outstanding WTO disputes between US and India through mutually agreed solutions as jointly communicated by Modi and Biden, and follows active discussions by India and the US during the last two years to terminate six outstanding disputes at the WTO.
These disputes filed by India and the US over a decade, represent certain key sectors of the economy such as steel, aluminium, renewable energy, solar products and certain key export-related measures. The unprecedented move in WTO history is premised on–as Modi pointed out–trade continuing to assume importance between the two nations. “Trade between our two countries are actually complementary. There are things that you have and there are things that we have and then we in fact complement each other. I find that in the area of trade during this decade, that is also going to be tremendously important,” Modi said at the joint address with Biden. The India-US trade and investment partnership is an engine for global growth with bilateral trade exceeding USD 191 billion in 2022, nearly doubling from 2014.
Commerce Minister Piyush Goyal has lauded the leadership of Modi in taking the decision to enhance trust and partnership between India and US. Responding to The Sunday Guardian on the timeline for the decisions taking effect, Goyal said, “The disputes would now have to be notified to the WTO that we are settling them bilaterally and the WTO would have to take them on record. After that it becomes effective. But in terms of our understanding, the six issues are closed. The USTR Ambassador Katherine Tie and I have already yesterday had a conversation just before the meeting between President and Prime Minister Modi and all the contours of that have been completely solved.”
Pradeep Mehta, CUTS Secretary General describes the move to square off the six WTO disputes as a “welcome step”, riding on a lot of factors like China wherein a lot of investment is being diverted to India from its eastern neighbour. “The US India trade has been going up and the US has become our largest trade partner. The more this mutual trust expands, the more will be the spillover effects,” Mehta, who has been appointed to the 12-member NGO Advisory Body of the WTO, told The Sunday Guardian. For instance, the new kind of defence deals that are being done, will certainly expand the trade volumes. “The trade should on a very rough estimate go up by at least 25%,” Mehta added. What has been factored in, into these dynamics at Washington, Mehta said, is the Taiwan factor. “If there is any conflict between China and Taiwan, then all our electronic, chips supply etc will be affected, a lot of which is coming from Taiwan now. Therefore, it is in our economic interest also that China does not curb the supply,” Mehta said.
Among the six trade disputes that will be terminated are three cases which have been filed by India against the USA. These are the Countervailing Measures on Certain Hot-Rolled Carbon Steel Flat Products from India (DS436) and Certain Measures on Steel and Aluminum Products (DS547). The context is that in April 2012, India sought consultations with the US with regard to the imposition of countervailing duties by the US on certain hot-rolled carbon steel flat products from India as it found the measures inconsistent with WTO trade norms. Further, the US in 2018, had imposed 25 per cent and 10 per cent import taxes on certain steel and aluminium products, respectively, on grounds of national security. In retaliation, India in June 2019 imposed customs duties on 28 American products, including chickpeas, lentils, almonds, walnuts, apples, boric acid, and diagnostic reagents.
Now as a part of the agreement, the US has agreed to grant market access to steel and aluminium products. The US Department of Commerce will clear 70% of steel and 80% of aluminium applications for products originating in India. These applications will be made, under the exclusion process of Sec. 232 of the Trade Expansion Act 1962, by the importers on behalf of the exporters. This market access will restore opportunities for Indian steel and aluminium exporters and provide significant impetus to raise such Indian shipments by about 35%.
India has also agreed to remove the retaliatory tariffs on certain products including chickpeas, lentils, almonds, walnuts, apples, boric acid and diagnostic reagents which, according to Katherine Tai, USTR, represents the culmination of intensified bilateral engagement over the last two years, including through the US India Trade Policy Forum to deepen our economic and trade ties. With this, US agricultural producers and manufacturers will enjoy renewed access to what Tai views as a critical global market. The Indian tariffs had all but shut down the Indian market for Washington’s more than 1,400 apple growers.
“Producers will now be able to increase sales of apples, chickpeas, lentils, almonds, and walnuts to one of the United States’ top trading partners,” US Secretary of Agriculture Tom Vilsack said.
The other disputes filed by India which will be buried are Export Related Measures (DS541) and Additional Duties on Certain Products from the United States (DS585). This was regarding certain measures of the US relating to domestic content requirements and subsidies instituted by the governments of the states of Washington, California, Montana, Massachusetts, Connecticut, Michigan, Delaware and Minnesota, in the energy sector.
From the American side, another dispute which will be terminated relates to the 2013 case on domestic content requirements under the Jawaharlal Nehru National Solar Mission for solar cells and solar modules. America claimed that the measures appear to be inconsistent with global trade provisions. The other three disputes, which have been filed by the USA against India are Export Related Measures (DS541) and Additional Duties on Certain Products from the United States (DS585). This 2018 case concerned alleged export subsidy measures by India under the Merchandise Export from India Scheme, Export Oriented Units, Electronics Hardware Technology Parks, Special Economic Zone and Export Promotion Capital Goods.
Another big takeaway from the India-US dynamics is the possibility of India becoming part of the trade pillar of Indo-Pacific Economic Framework (IPEF) as indicated by Government and other trade expert sources. India had stayed out of it as gains were few in terms of tariff concessions. With Government now inclined to the thought that there is no harm, India may well consider joining the trade pillar. Already at Washington, the two leaders reaffirmed that the IPEF is an important pillar of collective and collaborative efforts to build resilience in our supply chains, harness transformations in clean energy, and accelerate progress of our economies through anti-corruption efforts, efficient tax administrative practices, and capacity building measures.
“India stayed out of the trade pillar as only a temporary decision,” Mehta said. “Our worry is the social clause. India has been constantly opposing the social clause in all agreements, including the EU-India FTA. Look we have to live with it. Even the EU India FTA will not be signed without us accepting the social clause because the European Parliament has now made it mandatory. Take our child labour. India has only banned it in hazardous industries, not wholly. Unless we raise the standard of living of the people, child labour will continue to take place. So we should not be shying away from it but catch the bull by its horns and deal with the social clause,” Mehta said.
Experts point out that several issues remain unresolved. There is the issue of restoration of GSP benefits to domestic exporters. The Trump administration had revoked the Generalized System of Preferences (GSP) from India in 2019 which allows eligible developing countries to export duty-free goods to the US. About 1,900 Indian products from sectors such as chemicals and engineering were getting duty-free access to the US market under the GSP, introduced in 1976. “The GSP is not an impediment but it still remains on the table that we were asking them to restore privileges. The GSP privileges are worth hardly USD 6 billion,” Mehta said.
However, India and the US have agreed to discuss New Delhi’s demand for restoration of GSP benefits to domestic exporters and now both sides will commence discussions to find a solution, Goyal has said. The US has observed in the joint statement that India highlighted its interest in the restoration of its status under the U.S. Generalized System of Preferences programme, which could be considered in relation to eligibility criteria determined by the US Congress. India is also interested towards being recognized as a Trade Agreements Act-designated country by the United States to further enhance the integration of both economies and to further promote trade and investment between two countries. In this regard, the initiation of discussions between both sides at an official level on issues related to bilateral government procurement is a step forward.