Prelims cum Mains

Trade agreement with U.S. only delayed & not stuck, says govt.

In News:

  • US and India have been negotiating a trade deal for more than a year with ministers and officials of both countries discussing the issues at various domestic and global fora.
  • US President Donald Trump is scheduled to visit India on February 24-25 but a trade deal, even a limited one, is not expected to be signed.

Trumps visit to India:

  • Trump is likely to be accompanied by important cabinet delegations.
  • He will be visiting Ahmedabad, Agra and Delhi.
  • Trump will have a joint rally with Prime Minister Narendra Modi at the newly built Motera stadium in Ahmedabad.
  • The talks during the visit will be comprehensive and cover issues relating to our strategic partnership in the areas of defence, security, counter-terrorism, as well as trade, energy, people-to-people exchanges and other bilateral matters. They will also exchange views on regional and global issues of shared interests.

 

About: Indo-US trade deal

  • President Donald Trump said the United States and India were working on a major trade deal, but he was not sure if it would be completed before the U.S. presidential election in November.

Background: Trade issues between India and US

  • In March 2017, Donald Trump ordered the “first-ever comprehensive review” of the trade deficits of the United States, and “all violations” of trade rules that harmed American workers.
  • India was among the countries that exported more to the United States than it imported, and the latter was left with a trade deficit of over $21 billion in 2017-18.
  • While the US’s deficit with India is only a fraction of its deficit with China (over $340 billion in 2019), American officials have repeatedly targeted the “unfair” trade practices followed by India.

Some of the key issues with regards to trade deal:

The ‘Harley tariffs’:

  • Even after India halved the duty on the bike to 50% in 2018, US has repeatedly criticised India’s tariff on Harley-Davidson motorcycles from the US.

Steel industry hit:

  • In 2018, the US imposed additional tariffs of 25% on steel and 10% on aluminum imports from various countries, including India.
  • While India’s government claims the impact is “limited”, they brought down the US share in India’s steel exports to 2.5% in 2018-19 from 3.3% in 2017-18.

Farms, medical devices

  • The US has long demanded greater access for American agriculture and dairy products.

GSP axe and response :

  • In June 2019, the Trump administration decided to terminate India’s benefits under the Generalised System of Preferences (GSP) scheme, which provides preferential, duty-free access for over $6 billion worth of products exported from this country to the US.
  • Removal from the GSP list amidst rising trade tensions prompted India to finally impose retaliatory tariffs on several American imports, including almonds, fresh apples, and phosphoric acid. This was a significant move and the US approached the WTO against India.
  • Since then, officials from both sides have been trying to work out a modest agreement, which would open up India to American exports of agricultural products and medical devices in return for a restoration of India’s preferential status.
  • India has offered greater market access for many American farm products and lowered the duties on large engine Harley-Davidson Inc. motorcycles. In return, India has been seeking restoration of its GSP privileges.
  • India’s offerings have not been met with much enthusiasm from the US.

 

Why trade with US important for India?

  • In November 2019, India backed out of Regional Comprehensive Economic Partnership (RCEP), with protection for domestic agriculture and dairy interests being two of the major reasons.
  • Thus, India shut the door on the large “integrated market” that the deal was offering and increased the pressure on itself to strengthen existing separate trade agreements with each member of the RCEP bloc.
  • Also, in the backdrop of the global economic slowdown, where India’s global exports have fallen consistently, it is important for the country to diversify and strengthen bilateral relations with other markets.
  • Improving access to large developed markets including US would help India’s industry and services sectors.

Trade Relations:

  • Overall trade with the US had actually increased and would touch $160 billion soon.
  • India is one of the largest importers of almonds from the US.
  • The United States is among India’s top trading partners for goods while India is its eighth largest.
  • India’s trade surplus with the US came down to $16.9 billion in 2018-19 andthe surplus could be reduced further through imports of products such as aircraft from American firms.
  • India and the US could begin with some “low-hanging fruit” to indicate their willingness for a deeper economic commitment. This includes the US reinstating India’s benefits under the GSP programme, and India doing away with duties on motorcycles.

Defence deals:

  • Defence and security ties between India and the US have been on an upswing in the last six years.
  • In June 2016, the US had designated India a “Major Defence Partner”, intending to elevate defence trade and technology sharing with India to a level commensurate with that of its closest allies and partners.
  • The bilateral defence trade touched $18 billion mark in 2019, reflecting growing defence cooperation between the two sides.
  • There has been indication that two sides may announce further deepening of defence ties during Trump’s visit on February 24 and 25.
  • Both sides have also been pushing for joint venture and collaboration between private sectors of the two countries in defence manufacturing.

Copter deal okayed

  • The Cabinet Committee on Security (CCS), headed by Prime Minister Narendra Modi has recently cleared the procurement of 24 MH-60R multi-role helicopters for the Navy worth around $2.4 billion.
  • The bilateral agreement to seal the deal is expected to be signed after Prime Minister Narendra Modi’s talks with US President Donald Trump on February 25.
  • The helicopters are expected to boost the Indian Navy’s anti-surface and anti-submarine warfare operations.
  • The chopper is designed to hunt down submarines. The fleet would replace aging British-made Sea King helicopters.

Other defence deals in various stages of procurement:

  • AH-64E Apache attack helicopters: Another deal close to conclusion is of six additional AH-64E Apache attack helicopters for the Army, costing around $930 million.
  • Large Aircraft Infrared Counter Measure (LAIRCM): There has also been discussions for the sale of Large Aircraft Infrared Counter Measure (LAIRCM), a missile defence system for large aircraft (such as those used by VIPs).
  • Integrated Air Defence Weapon System (IADWS): It is a missile defence system which is also under discussion.The potential sale could be valued up to $1.867 billion and is likely to be taken up during U.S. Secretary of Defense Mark Esper’s visit to India in March 2020.

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