The intensifying trade war between the world’s two largest economies -China and the US has already started to alter global trade. World economy is in the grip of protectionist policies since the launch of Trump’s tariff measures.
Though the US started its nationalist policies by raising import tariff on steel and aluminium on 12 countries including India, Japan etc., in the next few weeks, it has been evolved as a bilateral trade war with China.
At the same time, the US has identified countries who are having trade surplus in their trade with the US. Here, India has the ninth largest trade surplus. Though India has a huge trade deficit in its overall trade with most trade partners, the country has a trade surplus of $23 bn with the US (2017-18).
For Trump, trade deficit is the most important tool to analyses US trade relationship with other countries. Here comes the question why US is following an aggressive trade policy against India; despite India being a strategic partner.
- GSP withdrawal: The attempt to withdraw the Generalized System of Preference given by the US to selected (around 3500) Indian commodities. Under GSP, tariff free import of selected commodities from 129 developing countries is allowed into the US. India has given a representation with the US trade officials for the extension of the GSP.
- Poultry import issue: India banned chicken import from US citing avian influenza risks. But in 2015, the US obtained a favorable verdict from the WTO’s DSB. The WTO ruled that India’s measure was disproportionate to the threat and constituted a non-tariff barrier. In the context of the WTO verdict, the government made changes in the health certification requirement for imported poultry items from the US.
- Steel and Aluminium tariff issue: The US increased tariff on Steel and Aluminium imports from 12 countries including India. Government approached the WTO’s Dispute Settlement Body against the US move. Simultaneously, trade officials are taking the issue to the US Trade Representative and other higher platforms. The impact of the Steel and Aluminium tariff will be negligible as only small fraction of the products are exported from India to the US.
India is waiting the final notification by the US on Steel and Aluminium. The government’s stand is that use of the tariff against selected countries is a violation of the Most Favored Nation clause of the WTO.
- Use of commercial policy by India: as a response to the US tariff on Steel and Aluminium, Commerce Ministry on June 20th notified tariff hike on 29 US products, including almonds, apples and phosphoric acid etc. (worth $10 bn) in retaliation to the steel and aluminium tariff hikes by the US. At the same time, India reduced tariff on selected imports from India including that on few categories of bikes to defuse the trade tension.
- Visa restrictions by the US: Perhaps the most devastating US step on India is the Trump administration’s decision to put curb on H1 B visas.
- The number of visas to be issued under H1B was reduced.
- Visa fees doubled for H1B.
- Visa eligibility in terms of annual income raised; thereby reducing opportunities for India’s skilled Labour.
- H1 B visas will be issued for single projects. After the completion of the project, the person should return without looking for any other job there.
- US says that two-year degree is not enough. Rather a four-year degree is a must of the issue of H 1B visas.
Visa restrictions will hurt the operations of Indian IT firms in the US.
- Solar Dispute: US secured a favorable verdict from the WTO’s Dispute Settlement Body against the limited local sourcing requirement under the National Solar Mission. Later, the US alleged that India is not following the verdict and sought WTO’s permission for taking retaliatory measures. India in a representation countered the US argument and cited the status report on the solar case and asked the WTO to appoint a Panel to examine the issue. The WTO created a Panel on the issue.
- Export Subsidy issue: US raises objections at the WTO to the export incentives given by India. At the WTO, the US argued that India doesn’t qualify to provide export incentives allowable for low income developing countries. India’s GNI per capita income crossed $1000 for three consecutive years and hence the country is not eligible to provide export subsidies. The US objected five export incentives given by India. WTO has decided to set up a Dispute Panel to examine the matter.
- On the MSP (Minimum Support Price) subsidies given by India, the US accused (notification) at the WTO that India is under-reporting the subsidies given under MSP. This is the first ever Committee on Agriculture notification by a country under the AoA, regarding another country’s subsidies. The US has taken the EU, Australia and few other countries to its side on this matter. India rejected the allegation.
- Food Security Programme at WTO Buenos Aires Ministerial Conference: US raised obstructions on India’s food security programme at the Buenos Aires Ministerial Conference (MC). Because of this US stand, WTO failed to reach consensus to provide a permanent solution to the Public Stock Holding of Food Grains on food security ground. As a reply, India and China asked the developed world to reduce their exorbitant levels of farm subsidies.
- Developing country treatment: At the Buenos Aires Ministerial Conference of the WTO, the US argued that countries like China and India doesn’t qualify for the Special and Differential Treatment benefits given for developing countries. India strongly objected to the US version.
- Intellectual Property Rights: India is continuously listed under the priority watch list in the US Intellectual Property documents that is prepared under the infamous Special 301 law. India is placed along with China and ten other countries. According to the US, countries in the list will be the subject of particularly intense bilateral engagement in future.
- Currency issue: A surprising development is US policy on currency management. Here, the US included India under currency practices and macroeconomic policies monitoring list along with China, South Korea, Japan etc. According to the US version, India procured foreign exchange from the market significantly during 2017.
- Appointment of judges to the DSB: India objected to the US stand of vetoing the appointment of judges to the WTO’s Dispute Settlement Body. India demanded that US should not block the running of the DSB and this is needed to protect the multilateralism-based governance of global trade.
India and 37 other countries made a formal proposal for the appointment of the judges that has been blocked by the US.
The US demanded changes in the functioning of the Appellate Body and demanded an amendment o the existing rule which allows judges to continue cases assigned to them before their terms ended.