Limited deal: Trade pact with US likely to be delayed

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November 18, 2020 8:14 AM

This is even as New Delhi, unenthused about revisiting the China-dominated Regional Comprehensive Economic Partnership (RCEP), seeks to counterbalance any potential damaging effect of the bloc on its foreign trade with bolstered ties with the US and EU, two among its three largest export markets.

When applied to all countries taken together, this implies that no country should be running large and growing trade deficits or surpluses.The US has been pressing India to abolish/cut “not justified” tariff on motorcycles (50%), automobiles (60%) and alcoholic beverages (150%).

If the proposed interim India-US trade agreement is designed to cover barely 15% of the trade between the two countries, Washington seems in no great hurry to clinch even this limited deal. This is even as New Delhi, unenthused about revisiting the China-dominated Regional Comprehensive Economic Partnership (RCEP), seeks to counterbalance any potential damaging effect of the bloc on its foreign trade with bolstered ties with the US and EU, two among its three largest export markets.

The proposed “limited deal” with the US could cover an annual trade of about $13 billion. “The US response to the proposal is still awaited,” a source told FE. With Joseph R Biden’s victory in the American presidential polls, analysts are expecting a further delay in the clinching of the deal, as even some of the settled issues may also be reviewed by the new administration.

Indian officials, however, indicate that New Delhi is willing to wait for a win-win deal for both. The limited deal was negotiated for months, before the US election purportedly slowed down the process.

This deal was to be followed up with bilateral talks for a broader free trade agreement (FTA), the imprerative of which has only risen after the conclusion of the China-dominated Regional Comprehensive Economic Partnership (RCEP) deal on Sunday. The US is India’s largest export destination.

Under the “limited” deal, India was pushing the US for a complete restoration of duty benefits for it under the so-called Generalised System of Preferences (GSP). This will mean duty-free Indian supplies of over $6 billion a year (the tariff forgone for the US was only $240 million in 2018). This deal is expected to be almost evenly balanced in terms of trading value for both the partners.

However, with the new US administration taking over early next year, India may be willing to even expand the coverage of the deal on a reciprocal basis, a source said. In that case, the limited deal may be converted into a preferential trade agreement involving dozens of key products, which will set the stage for an FTA subsequently.
According to the source, 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%.

As part of the limited deal, India is learnt to have offered to reduce tariffs on high-end bikes like Harley Davidson, extend greater market access in farm products, including cherry, and sweeten its initial offer on easing price caps in medical equipment. 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.

However, negotiations on the American demand for India to scrap duties on seven ICT products, including high-end phones and smart watches, are yet to be concluded, said the source. New Delhi had earlier estimated that any such move would mean a potential customs revenue loss of $3.2 billion or more a year.

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.

New Delhi has been critical of stringent US patent protection laws and various steps by the Food and Drug Administration (FDA), which have dented India’s exports of pharmacetical products. This is among the important non-tariff barriers that India wants the US to remove.

In Septmeber, commerce and industry minister Piyush Goyal had said US trade representative Robert Lighthizer and he had agreed that “we can look to finalising (the limited deal) before the (US) election, or otherwise soon after the election”.

Analysts have said any US move to rejoin the ambitious Trans-Pacific Partnership (TPP) trade deal with 11 others, which was rejected by the Trump regime, will further pressure India to redraw its trade ties to ensure it’s not left behind in integrating with global supply chain.

However, even if a deal may take some more time now, it’s worth waiting for, analysts say. This is because the Biden administration will likely be more pragamatic and may not view trade ties with countries, especially strategic allies, striclty from the narrow prism of American trade deficit, as Donald Trump did, they add. However, given that Trump has gone too far with protectionist measures through his “America First” policies, it won’t be easy for Biden to unwind them quickly.

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