Despite differences, India and US trying to seal preferential trade deal

India and the US are trying to seal a bilateral preferential trade agreement that will include a limited number of goods and services, but market access for dairy products, medical devices and ICT products like mobile phones demanded by Washington remain sticky issues, an official said.

Commerce and Industry Minister Piyush Goyal said on Tuesday that both countries were close to a trade deal that may include 50-100 goods and services.

The attempt being made by the two countries to carve out a preferential trade pact follows the direction given by US President Donald Trump and Prime Minister Narendra Modi earlier this year, during Trump’s India visit, as a full-fledged free trade agreement (FTA) seemed elusive due to differences over a large number of issues. The US is India’s top trading partner accounting for $88.74 billion in bilateral trade in 2019-20.

“Although the scope of the bilateral trade agreement now being worked out between the US and India has been narrowed down considerably, differences still remain over items both side want to be included in the pact,” the official said.

Washington, for instance, is continuing to demand market access for dairy products and urging India to be flexible on its stringent norms of not allowing items derived from animals fed on bovine extracts.

“The US is also insistent that import duties on mobile phones and certain other ICT products be removed or lowered. While India has expressed its willingness to consider doing it for high-end items, the US believes it is not enough,” the official said.

Medical device is another area where American companies want greater market access. “While earlier the main issue was price caps imposed by India on a number of medical devices, now the US is also unhappy that India imposed health cess on imported medical devices in this year’s Union Budget,” the official said.

While India is ready to oblige the US by lowering duties for less sensitive items such as motorcycles (given Trump’s long-standing demand of cutting import cess on Harley-Davidsons), it finds it difficult to move on sensitive products such as dairy and medical devices.

India’s demands

New Delhi, on the other hand, wants the US to cut duties on steel, give greater market access for labour-intensive items and restore the Generalised System of Preferences scheme under which more than 3,000 items from India were allowed duty-free/low duty access into the US market.

Trump and Modi decided in February this year that while the two countries could sign a limited deal now, the full-fledged FTA involving almost all trade items and other areas of liberalisation such as investments, government procurement, intellectual property and e-commerce could come later.

The Trump regime is looking at a trade pact with India as a way to lower the trade deficit with the country which has been a sticking issue between the two countries and has led Washington to impose unilateral tariffs on India’s steel and aluminium exports to the country and withdraw the GSP scheme.

India, however, maintains that it is doing its bit in reducing the trade deficit by buying more American products including oil and gas. India’s trade surplus with the US has reduced from $24 billion in 2016 to $20 billion now, according to Indian officials.

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