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Can U.S. Business Benefit from an India Trade Deal?

March 6, 2020

Can U.S. Business Benefit from an India Trade Deal?

To have a deal or to not have a deal -- that is still the question. President Trump was expected to announce a deal with Prime Minister Modi during his visit to India at the end of February, but the timeline for an initial deal has now been pushed back to the end of the year. In a joint statement, the two leaders said they are optimistic that they can reach a comprehensive deal that is good for both countries, but likely not until after U.S. elections in November.

India has continued to work its way up the list of the U.S.’s largest trading partners, currently listed as 9th, placing it not far behind our European allies in terms of volume. Overall trade between the two countries has grown from $11 billion in 1995 to $142 billion in 2018. Despite this growth, U.S. businesses have faced increasing challenges in the Indian market over the years, including high tariffs, investment restrictions, data localization requirements, and other sector specific barriers.

The bilateral trade relationship began to shift following President Trump’s announcement of his intent to terminate India’s designation as a beneficiary under the Generalized System of Preferences (GSP) program in March 2019. Authorized by the Trade Act of 1974, the program was designed to support economic growth in developing countries by granting beneficiaries duty free treatment of goods. During a review of the program in April 2019, the United States Trade Representative (USTR) determined that trade barriers in India are restricting access to its market in a number of sectors and therefore fail to meet the criteria of the GSP program, which states that countries must provide “equitable and reasonable access to its markets and basic commodity resources.”

The termination announcement initiated a 30 day notice period, which ended on May 3, 2019. India was gearing up for elections at this time, and this resulted in new Ministers being installed by Prime Minister Modi. When Pyush Goyal took the helm as the new Minister of Commerce and Industry in June 2019, conversations between the two sides took on a more regular cadence and showed promising signs that there might be some sort of an agreement. The limited deal was likely to have included price controls on medical devices and tariff reductions on agricultural and some manufacturing products.

Despite the strong relationship between President Trump and PM Modi, it doesn’t seem that the parties have been able to strike such a deal as new issues have continued to pose difficulties. In addition to the longstanding market access barriers, discussions between the two countries have been complicated by the adoption of protectionist measures by both sides. Following the U.S. steel and aluminum tariffs, India retaliated by imposing tariffs on a host of U.S. agriculture and manufacturing products.

An additional factor that likely impacted the bilateral discussions was the announcement on February 1, 2020 that India was raising import duties on goods including electronic appliances, toys, furniture, and medical devices as part of PM Modi’s “Make in India” program.

The U.S. Trade Policy Agenda & Annual Report released by USTR last week does not include India in the list of the Administration's goals for new trade agreements in the coming year. The report therefore suggests that efforts will be focused on negotiating agreements with the UK, EU, Japan and Kenya.

It remains to be seen whether or not a deal will be reached by the end of the year, but U.S. business remains interested in reaching a comprehensive deal that seeks to address the investment restrictions, data and privacy issues, and other market access barriers.

-- Claire Pillsbury, Director for Trade Policy, NFTC