india trade tariffs

As RCEP Negotiations Hit Final Stretch in Singapore, Will India Take the Plunge?

The Modi government has climbed down from its initially cautious position, but will it be enough to push the free trade deal through?

New Delhi: South Asia’s attention is on India as trade ministers from 16 countries gather in Singapore on Monday to ensure the early conclusion of talks for launching what would be the world’s largest free trade area.

All eyes are on the Indian government, which has so far fended off pressure to commit to comprehensive tariff cuts on a wide range of goods.

However, trade experts feel time is running out for Prime Minister Narendra Modi as negotiations enter the last lap to bring the envisaged Regional Comprehensive Economic Partnership (RCEP) into reality as quickly as possible. Other countries, especially China, are pushing for the early conclusion of talks, leaving India isolated.

RCEP has been envisaged as including ten ASEAN group members (Brunei, Cambodia, Indonesia, Malaysia, Myanmar, Singapore, Thailand, the Philippines, Laos and Vietnam) and their six FTA partners – India, China, Japan, South Korea, Australia and New Zealand.

India has a trade deficit with ten out of 16 countries in negotiations to ink the mega free trade pact.

According to commerce ministry data, India’s trade deficit with seven countries – Indonesia, Thailand, China, Japan, Korea, Australia and New Zealand – increased in 2017-18 from the preceding fiscal.

The trade gap with China, Korea, Indonesia and Australia has increased to $63.12 billion, $11.96 billion, $12.47 billion and $10.16 billion in 2017-18. It was $51.11 billion, $8.34 billion, $9.94 billion and $8.19 billion respectively in 2016-17.

Also read: India Contemplates Bartering Basmati Rice with Iran to Bypass Sanctions

India’s domestic industries, specifically the steel and textile sectors, have opposed any move for making further tariff concessions under the proposed RCEP pact.

Political considerations have, nevertheless, kept India from backing out of negotiations. For India, China is the big elephant in the room.

That is the reason some trade experts have warned that India should be careful in RCEP negotiations.

For one, as Biswajit Dhar, professor, Centre for Economic studies and Planning, Jawaharlal Nehru University (JNU), told The Wire, India should be cautious while negotiating tariffs for manufacturing and farm products.

On the other hand, there are industry veterans like Naushad Forbes, former president, Confederation of Indian Industry, who feel that trade deficits have nothing to do with free trade agreements and pacts.

In an article published in Business Standard recently, Forbes tried to dispel the impression that free trade pacts lead to trade deficits. He argued that China has a huge trade surplus with India, though there is no free trade agreement between the two Asian giants. Similarly, India has a big trade surplus with the US even in the absence of a bilateral free trade pact.

Also read: Delhi’s RCEP Talks on Intellectual Property Shouldn’t Forget India’s Role as ‘Pharmacy of the World’

Currently, RCEP countries want India to commit duty cuts on at least 92% of tariff lines. Fearing that it would cede too much ground to China, India’s initial proposal during negotiations was a three-tier tariff reduction plan. Countries that came under the third tier, which would include China, would only be offered 42.5% liberalisation in tariffs.

Under pressure from other countries, and hoping perhaps to gain something on the services front, India back-tracked and took back its three-tier proposal. The problem now is that India’s new offer (tariff liberalisation on 74% of goods for China and a few other countries and up to 86% for all other RCEP members) is not being viewed favourably either.

In return for tariff liberalisation on goods, India has sought greater commitment from RCEP members on liberalisation of the services sector, especially easy movement of its professionals to other countries in the proposed trade bloc.

It has pushed for adopting ASEAN-Australia-New Zealand FTA as the template. However, its demand has failed to find traction with other RCEP members, resulting in a lowering of its ambitions.

RCEP set to get political push this week

During his recent visit to Japan, Prime Minister Narendra Modi signalled India’s resolve to conclude RCEP negotiations. India and Japan reaffirmed the strategic importance of the early conclusion of the negotiations for a high-quality, comprehensive and balanced RCEP agreement for realising full benefits of a free and open Indo-Pacific region, as per the vision statement issued at the end of Indian prime minister’s visit to that country.

RCEP negotiations are set to get the much-needed political push from heads of governments from member countries including Modi assembling in the city state later this week.

Also read: RCEP Negotiations Will Not End in 2018, Says Suresh Prabhu

At the conclusion of their meeting at the end of August this year, trade ministers vowed to conclude RCEP negotiations by the end of this year. However, given the quantum of work that still needs to be done, it looks unlikely that RCEP talks will be concluded by December end.

The proposed RCEP deal is envisaged to have 18 chapters, but negotiations have been concluded in four areas only.

The trade PACT would cover nearly 50% of the global population, 32% of the world GDP and 29% of the international trade and 26% of foreign direct investment flows.

The proposed agreement, for which negotiations started in Cambodian capital Phnom Penh in November 2012, aims to cover goods, services, investments, economic and technical cooperation, competition and intellectual property rights.

India Enters the Trade War Game, but Leaves Harley Flame Alive for Peace Talks

These moves come ahead of assistant US Trade Representative Mark Linscott’s trip to India next week.

New Delhi: India has joined the European Union and China in hitting back at the United States with the announcement of additional tariffs on 29 American products including apples, almonds, walnuts, pulses and shrimp as a retaliatory move against President Donald Trump’s decision to unilaterally hike import duties on steel and aluminium.

New import duties will hit US exports worth $235 million when they come into effect on August 4, government sources said.

The move comes after the Modi government failed to secure an exemption from US duty hikes for steel and aluminium products.

But, in a change from its earlier decision, India has exempted Harley Davidson motorcycles from punitive duty. Earlier, it had indicated its plan to impose 50% additional duty on the iconic US bikes as a retaliatory measure.

Trump has publicly raised concerns over what he believes is the high import duty that these motorcycles attract in India.

Sources said India’s decision not to raise duties with immediate effect and exempt Harley Davidson bikes are goodwill gestures aimed at keeping alive the possibility of negotiating trade disputes when assistant US Trade Representative Mark Linscott visits India next week.

Last week, India had submitted a list of 30 items to the World Trade Organisation on which it proposed to raise import duty by up to 50% as retaliation against the unilateral US move to hike duty on steel and aluminium products.

As per the finance ministry notification, the import duty on chickpeas, Bengal gram (chana) and masur dal has been increased to 70% from 30% earlier. Lentils will attract 40% instead of 30%.

Shelled almonds imported from the US will now attract import duty at Rs 120/kg as against Rs 100/kg earlier. Almonds in shell will attract import duty at the rate of Rs 42/kg as against Rs 35/kg.

Import duty on ‘walnut-in-shell’ will attract customs duty at the rate of 120% as against 30% earlier. Apples have been subjected to import duty of 75% as against 50% earlier.

The duty on boric acid has been hiked to 17.50%, while it has been doubled to 20% on phosphoric acid.

Import duty on diagnostic reagents has been doubled to 20%. Duty on flat-rolled steel products has been hiked to 27.50% from 15% earlier, while certain flat-rolled products of stainless steel will now attract 22.50% duty instead of 15% earlier.

Meanwhile, the exemption provided by the US to steel and aluminium imports from allies like the EU, Mexico and Canada expired on June 1. Following that, the EU has slapped 25% retaliatory tariff on US goods worth 2.8 billion euros including Harley Davidson bikes. European Commission president Jean-Claude Juncker said duties imposed by the US on the EU go against “all logic and history”.

Mexico too imposed additional tariff on US products worth $3 billion as retaliation. Canada has also vowed to retaliate against the unilateral US move.

In April, China implemented retaliatory tariffs of up to 25% on $3 billion in food imports from the US against the latter’s decision to hike duties on steel and aluminium products.

Trump had announced plans for tariffs on foreign steel and aluminium in March, justifying them on national security grounds. He argued that global oversupply of steel and aluminium, driven by China, threatened American steel and aluminium producers, vital to the US.

After the announcement, South Korea, Argentina, Australia and Brazil had agreed to put limits on the volume of metals they could ship to the US in lieu of tariffs.

The US granted temporary exemptions to the EU, Canada and Mexico amid negotiations over limits. The extended deadline of June 1 has expired.

India had asked the US government to exempt it from the 25% steel tariff and 10% aluminium tariff imposed by Trump on grounds of national security. But the latter rejected India’s request. India has also moved the WTO against the US move.

India’s commerce minister, Suresh Prabhu, visited the US recently to sort out bilateral trade issues. However, he failed to achieve a breakthrough.

The US gave those allies a reprieve from the duties, but the exemptions were set to expire Friday. The Trump administration will place quotas or volume limits on other countries such as South Korea, Argentina, Australia and Brazil instead of tariffs, he said.

Addressing media at the conclusion of the recent G7 summit in Canada’s Quebec City, Trump had singled out India, accusing it of charging 100% tariff on some US goods. “We’re like the piggy bank that everybody is robbing,” Trump had said.

Meanwhile, US-China tit-for-tat tariff hikes threaten to escalate into a full-blown trade war, with Beijing saying it would place its own additional tariffs on 659 US imports worth $50 billion after Washington slapped punitive tariffs on Chinese goods.

At G7, Trump Accuses India of Charging 100% Tariff on Some US Imports

“This isn’t just G7. I mean, we have India, where some of the tariffs are 100%. A hundred percent. And we charge nothing. We can’t do that. And so we are talking to many countries,” Trump said.

Washington: President Donald Trump has taken a swipe at India along with the world’s other top economies and accused New Delhi of charging 100% tariff on some of the US’s goods, as he threatened to cut trade ties with countries who are robbing America.

Trump made the remarks in Canada’s Quebec City where he was attending the G7 summit that ended in farce after he abruptly rejected the text of a consensus statement and bitterly insulted the host.

“We’re like the piggybank that everybody is robbing,” Trump said while addressing a press conference on June 9.

He also made a reference to India, indicating that his grievances on tariffs were not restricted to the developed economies alone.

Trump has repeatedly raked up the issue of India imposing high import duty on the iconic Harley-Davidson motorcycles and threatened to increase the import tariff on “thousands and thousands” of Indian motorcycles to the US.

“We’re talking to all countries. And it’s going to stop. Or we’ll stop trading with them. And that’s a very profitable answer, if we have to do it,” Trump warned before leaving Canada for Singapore where he is scheduled to hold a much-publicised summit with North Korean Leader Kim Jong Un on June 12.

His remarks came at a time when the India-US relationship has been on a positive trajectory for years. For example, bilateral trade expanded by $11 billion last year to more than $125 billion, a new record.

Trump, who is pushing his ‘America First’ policy, said his ultimate goal was the elimination of all trade duties.

“Ultimately that’s what you want,” he said. “You want a tariff-free. You want no barriers. And you want no subsidies. Because you have some cases where countries are subsidizing industries and that’s not fair.”

China and the US have averted a trade war by reaching an agreement last month under which Beijing has agreed to “significantly increase” its purchases of American goods and services to reduce $375 billion trade deficit with Washington.

The top trading partners of the US are upset over recent imposition of a 25% tariff on import of steel and 15% on aluminum.

The US has said that the best way to solve trade disputes was by lowering tariff and non-tariff barriers by countries and allowing the free market to operate.

Under President Trump, trade dispute between India and the US has increased, with his administration asking New Delhi to lower its trade barriers and open up its market.

However, unlike countries like China, Mexico and Canada and those from Europe, India is not on top of the trade issues for the Trump administration.