The US may try to push India for a deeper engagement with the Indo-Pacific Economic Framework for Prosperity (IPEF) and also join the trade part of negotiations in the 14-nation block during Prime Minister Narendra Modi’s visit to that country from June 21 to June 23, according to trade experts.
“On IPEF, India has been a bit wary. The US will expect India to participate more (in this US-led initiative) ,” international trade expert and former professor at Jawaharlal Nehru University, Biswajit Dhar said.
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India has opted out of the trade part of the negotiations of the IPEF block which accounts for 40% of world’s GDP and 28% of world’s trade in goods and services. IPEF has 14 members – Australia, Brunei Darussalam, Fiji, India, Indonesia, Japan, Korea, Malaysia, New Zealand, US, Philippines, Singapore, Thailand and Vietnam.
The US launched IPEF to counter China’s influence in South-east Asia and South Asia. Apart from trade it is negotiating supply chains, clean energy, decarbonisation, infrastructure, tax and anti-corruption. Even in trade talks, tariffs are not being discussed. The economy of the size of India not participating fully in the US-led initiative has divested it of some heft.
Another trade issue that the US is expected to raise during the Prime Minister’s visit could be the wide trade balance in favour of India. “There may be a renewed push by the US for greater access to India’s agriculture markets for its selling products and agri-technologies like GM crops and seeds,” another trade analyst who did not wish to be identified, said.
India on its part may again raise the issue of additional taxes on exports of its steel and aluminium that the US has imposed, Director General and Chief Executive Officer of Federation of Indian Export Organisations Ajay Sahai said. The US administration under Donald Trump had imposed 25% import duty on steel and 10% on aluminium in 2018 to check imports from China. It ended up impacting India also. Later steel and aluminium exports from the EU to the US were given exemption from this tax. India is seeking a similar deal.
While old issues around visas to Indian skilled professionals and Intellectual Property in the pharma sector may come up again, the most recent debate and issues around localisation of data which the US links to freedom to its technology companies to operate in India could figure prominently, he said.
After local data storage was made mandatory by the Reserve Bank of India for payment system providers most of the players in the sector have already complied with the norms but still some issues remain.
According to the US, for storing data locally, the US companies will have to invest in India which would increase their costs. The new Data Protection Bill being framed has raised some concerns among US technology companies on how to comply with the demands that the proposed law may put on them.
Another issue that bothers the US is Digital Service Tax (equalisation levy) imposed by India to ensure that digital service companies pay tax on their earnings from India. It is levied at 2% of revenues of digital platform services, digital content sales and data related services. The US wants India to align its digital tax system to the global tax framework, Sahai said.
New Delhi introduced the digital services tax in 2016 with a 6% levy on online advertising, and expanded it via the Finance Act 2020, with a 2% impost on payment for e-commerce supply of goods and services , provided for by non-resident operators.
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India has its own issues on agriculture trade which includes sanitary and phyto-sanitary standards that the US imposes on its fruit and vegetable exports.
“We have our issues in the area of high-technology. We are not getting high technology products and technologies. The US is still not confident in sharing technology with India. There has been a lot of talk around technology cooperation but there is a gap in actual progress,” Dhar said.
The diversification of supply chains and the China plus strategy have been talked about but nothing is happening on the ground, he added.
Another issue that could be discussed is World Trade Organisation reforms and getting its appellate functional again, another trade analyst said. The US has blocked appointment of judges to the appellate body saying that it is involved in judicial activism and impinges on US sovereignty. Other India-US disputes at WTO like on duties on steel and solar that have been pending for long may also figure in talks.
“Trade is the strong pillar of our relationship. The US and India have a strong trade and investment partnership. Bilateral trade between the two countries is $200 billion,” external affairs secretary Vinay Mohan Kwatra said at a press conference on Monday.
