Introduction:

US Commerce Secretary recently visited India to raise the issue of supposedly high barriers to trade erected by India.  This visit was preceded by a series of measures announced by the US against India, including –

• India was put on the Priority Watch List in its annual Special 301 Report.
• Termination of Iran’s oil sanction waivers available to India along with other countries.
• Highlighting of data localisation requirements in India as a key barrier to digital trade in the USTR National Trade Estimate report.
• Announcement to terminate India’s designation as a beneficiary developing country under the Generalized System of Preferences.
• Increase in H1B visa fee, which will affect Indian IT services exports to the US.

America’s interests:

The American tactic of announcing threatening measures is to hit economically hard and arm-twist India so as to bring it to the negotiating table, and compel India to accept the American demands of:

• Increased market access through reduced tariffs on dairy products, wheat and Harley-Davidson motorcycles.
• Removing the price caps fixed by the Indian government on medical devices of interest to US producers.
• Change in India’s domestic IP laws for protecting windfall monopoly profits of the US IP holders, particularly in the pharmaceutical sector.
• No restrictions on cross-border data flows.
• Roll-back measures pertaining to data localisation in financial services taken by RBI.

 India is not a ‘tariff king’:

• The US cherry-picked data to portray India as a highly protected country and described it as ‘tariff king’. But it is contrary to the fact. The highest tariff in India is 150% on alcoholic beverages, whereas in the US the highest tariff is 350% on tobacco products.
• India’s highest tariff is much lower than applied by many other countries such as South Korea, Japan, Australia, to name a few.
• Even from the average tariff perspective, India’s average applied tariff is 13.4%, much below its average bound tariff at the WTO.

Issues at WTO:

• The US is also apparently unhappy with India’s submission in the World Trade Organisation (WTO), cosponsored with the European Union and other WTO members on reforming the dispute settlement mechanism of the WTO. The suggested reforms in India’s cosponsored paper widely differ from the position taken by the US on the functioning of the DSB and the reforms proposed by the US.
• The US has been blocking new appointments to the Dispute Settlement Body (DSB), arguing over its role and leaving it with the bare minimum needed to function.

Issue:

• The US has earlier stated that India and some other developing countries had made great development strides over the years and hence should not be allowed to take benefits of the special and differential (S&D) provisions of the WTO.
• While there is no denial that India and other developing countries have made progress over the years, the development divide is still very much present between developed and developing countries, and hence the need for continuance of S&D provisions.

Way ahead:

The US is well aware that if there is any country after China that can challenge the hegemony of the US in the future, it is India. Therefore, the US is using these threatening and other tactics to suppress the rising stature of India in the global trading system, and to curtail the potential of the country to grow economically.

India should stand firm on most of the above issues in its dealings with the US bilaterally as well as at the WTO.

• The government response and policy formulation should be driven by domestic requirements and not by any dictate from the US.
• At the same time, track II economic diplomacy through chambers of commerce and industry lobby groups could be encouraged to make the US aware of the losses that will incur to both sides, if such posturing by the US against India continues.