India-US trade deal: Is Donald Trump asking for too much

Published: October 2, 2019 2:10:42 AM

It remains to be seen when Modi will budge and give in to Trump’s demand to effectively implement TMR and lower tariffs.

It remains to be seen when Modi will budge and give in to Trump’s demand to effectively implement TMR, and, most importantly, lower the tariffs.

By Bhabesh Hazarika 

As the famous saying goes, politics dominate even the most casual conversations. This holds true for the latest bonding between the US president Donald Trump, and the Indian prime minister Narendra Modi. While Trump has repeatedly called India ’Tariff King’ for imposing high tariffs on American products, there seems to be a shift in sentiment, owing to the ’Howdy Modi’ euphoria.

But, is this shift of sentiment genuine, or there is more to the story that doesn’t meet our eyes? An announcement on a bilateral trade deal was expected on September 25, 2019, on the sidelines of the UN General Assembly meeting. India’s refusal to remove the 20% tariff on information and communication Technology (ICT) products seems to be the reason behind the delay. The US Senator Graham Lindsey had recently claimed that India has the worst tariffs in the world on US products; 67% of tariffs across the world have damaged America’s trade deficit ratio.

India’s import of medical devices jumped 24% to Rs 38,837 crore in 2019, as per the latest export-import data. If reports are to be believed, average tariffs in India are much higher than those in developed economies. An official report released by the USA asserted that India’s tariff on other countries, who are members of the World Trade Organization (WTO), are the highest. The average tariff rate demanded by India in 2018 was 17.1%—much higher than the USA, Japan, and the European Union, whose rates ranged between 3.4% and 5.2%. The average tariff levels claimed by India, however, are more in line with other developing nations.

For instance, the average rate in 2018 in Turkey, was 10.7%, in Brazil, 13.4%, and in Egypt, 19.1%. India, however, has always maintained that it has adhered to WTO guidelines. The country cites another measurement of tariff rates, called trade-weighted average, which accounts for imports on volume, thus measuring the average of the tariffs collected. The trade-weighted average tariff of India was 11.7% in 2017—Brazil’s was 10%, and South Korea’s 8.1%. The trade-weighted average tariffs for the US, Japan, and the EU, however, were much lower at 2.3%, 2.4%, and 3% respectively.

India cites these reasons to have a ’No negotiations’ stand, especially in the ICT products category. PM Modi is also concerned that if the tariffs are removed, the decision could open the market to a variety of Chinese products.

Nonetheless, there has been a positive buzz on Trump and Modi’s attempts to establish a transparent, and predictable pricing mechanism for a variety of products in the agricultural, and medical devices sector. These interventions will promise quality treatment, with focus on patient safety.

Trump has been vocal about his demands as far as the medical devices sector is concerned, asking for much greater accessibility to the Indian markets for medical devices such as cardiac stents and knee implants, and removal of price caps. Consistent discussion on price control, between experts from the medical devices industry and the government, has also led to ’trade market rationalisation’.

The US expects the policy decisions to be in accord with the condition that global medical devices manufacturers be paid on a ’first point sale’ basis, rather than on a ’landing price’ basis. First point sale means that the payment should cover cost, insurance, and freight. It may be noted here that there are four to seven points of sale in the supply chain. This incurs expense namely freight, inventory in high-maintenance warehouses specially designed for medical devices, rental, sales and marketing overheads, wages, and service and statutory costs of compliance.

So, the big announcement is awaited. It remains to be seen when Modi will budge and give in to Trump’s demand to effectively implement TMR, and, most importantly, lower the tariffs.

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