India ‘paramount’ for U.S. business goals. Yet troubles persist

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“With its strong and growing economy, India is paramount to the Administration’s approach to the Indo-Pacific region.” Those are the words of United States Commerce Secretary Wilbur Ross May 7, when he addressed a gathering of American businesses in New Delhi.

Prime Minister Narendra Modi with U.S. Commerce Secretary Wilbur Ross at May 7 meeting in New Delhi. (Photo: Prime Minister Modi’s Twitter account)

Ross’ trade mission to India was the largest this year, and according to him, it demonstrated Washington’s commitment to taking the bilateral relationship “to new heights.”

“Yet there is a real imbalance,” Ross stressed at the Trade Winds Conference, marching out data that showed imports and exports from the two countries to each other, that played in favor of New Delhi.

Ross’s dissatisfaction was the day after bilateral talks with his counterpart, India’s Minister of Commerce & Industry Suresh Prabhu,  which concluded with a bland statement.

“Both sides agreed to engage regularly at various levels to resolve outstanding trade issues by exploring suitable solutions, which are mutually beneficial and promote economic development and prosperity in both countries,” the statement said, adding, “Both sides agreed to deepen economic cooperation and bilateral trade by ensuring greater cooperation amongst stakeholders, including Government, businesses and entrepreneurs.”

Relations are at a new low with U.S. threats to end India’s status under the Generalized System of Preferences, and with India scrambling to meet the requirement under the U.S. sanctions on  countries importing oil from Tehran, While the results of this powerful trade mission which included a crack team of American experts, is not yet known, the advantages of clearing obstacles that endanger this trade relationship are more than apparent.

The team laid out the problems — India’s average applied tariff rate of 13.8 percent remains the highest of any major world economy. It has a 60 percent tariff on automobiles; 50 percent on motorcycles; and 150 percent on alcoholic beverages. Its bound tariff rates on agricultural products average 113.5 percent, and are as high as 300 percent.

Other obstacles include price controls on medical devices and pharmaceuticals, and restrictive tariffs on electronics and telecommunications products. Tariffs for network routers and switches and parts of cellular phones are as high as 20 percent.

“In stark contrast, the U.S. rate for these same products exported from India to the United States is zero,” Ross said, contending that these high tariffs undermined India’s goal of improving digital access and digital literacy.

Meanwhile, Indian companies have been moving forward to invest in the United States. There is a long way to go on matching those figures. According to the U.S. Commerce Department’s figures for 2017, India’s foreign direct investment into the United States totaled $13.1 billion, while U.S. FDI into India was more than $44 billion.

U.S. Commerce Secretary Wilbur Ross poses with Indian counterpart, Minister of Commerce & Industry Suresh Prabhu, May 7 in New Delhi. (Photo: Suresh Prabhu Twitter account)

Prabhu addressing the same group of American businesses, said while his country’s exports currently outweigh its imports from the U.S., there may be a day when things would be opposite.

The joint statement issued at the conclusion of Ross-Prabhu talks said little about a resolution of the outstanding issues. Both sides, “appreciated the strong, robust and growing bilateral ties between India and the U.S. across the entire spectrum of trade and commerce,” the statement said. They “expressed satisfaction” over the progress during the year 2018, with bilateral trade in Goods and Services registering a growth of 12.6% from $ 126 billion in 2017 to $142 billion in 2018.

Ross promised to help American companies make headway in India and the region, and argued that American business was particularly well positioned to meet the demand of rising economies

America knows that India’s growing economy leaping ahead at 7.1 real GDP growth rate (expected to rise higher next year), as the world’s third largest economy, is expected to become the world’s largest consumer market by 2030, because of the rapid growth of the middle class.

Washington is disappointed that India is only its 13th largest export market, due largely to”overly restrictive market access barriers,” Ross noted

“We are confident that U.S. technologies and expertise can play an important role in serving India’s critical development needs,” said Ross, noting that New Delhi is actively pursuing a range of development priorities, including revitalizing urban infrastructure, ensuring access to energy, and digitizing services.

If New Delhi holds any cards it is the role it plays as a strategic partner in the Indo-Pacific, one that President Trump has recognized. In 2016, his administration elevated India to the position of Major Defense Partner by giving it the distinction of Strategic Trade Authorization — or STA — Tier-1 status. This allows for $2 billion worth of potential exports from the United States to India without the need for export licenses. That gives U.S. business an opportunity to increase defense technology sales to India.

But he left the country with a parting shot and veiled threat that hardly signalled substantive progress during this visit.

Speaking to CNBC0TV18, Ross warned that any retaliatory tariff by India in response to the United States’ planned withdrawal of trade privileges will not be “appropriate” under WTO rules, Reuters reported, He also criticized new e-commerce rules India put in place as harming U.S. investments. The rules bar companies from selling products via firms in which they have an equity interest; plus Ross contended that data localization rules have been discriminatory for U.S. firms such as Walmart Inc and Mastercard Inc., Reuters reported.

So the saber rattling continues. New Delhi has warned it would raise import duties on more than 20 U.S. goods, if Washington went ahead with ending its GSP status, a step announced by President Trump in March. Ross indicated taking that step, which would affect more than $5 billion of India’s exports to the U.S., would depend on what New Delhi does to meet Washington’s concerns.

“Any time a government makes a decision adverse to another one, you will have to anticipate there could be consequences,” Ross is quoted Reuters telling CNBC-TV18. “We don’t believe under the WTO rules that retaliation by India would be appropriate.”

Prime Minister Modi was focused on “Make in India,” Ross acknowledged, “But there’s a limit to how far the discriminatory behavior can go,” Reuters reported him saying, adding, “And our job is to try to get a level, more level playing field.”

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