OPINION:
The United States and India have embraced a new strategic partnership. Its broad goal is to contain the rising influence of China in the Pacific, and to keep Muslim Pakistan, an unstable ally in the war against the Taliban in Afghanistan, at bay.
The partnership includes growing cooperation on military and security relations. It also features expanding trade and investment in support of India’s evolving national manufacturing initiative known as “Make in India.”
All of these elements are working. But there’s a major hitch: India is still using high tariffs and other protectionist measures to keep U.S. manufacturing goods from entering its domestic market.
As a result, America continues to suffer a debilitating trade deficit ($32 billion) with the world’s second largest country, which is home to some 200 million consumers. It’s a problem that the Trump administration needs to address — and soon.
The trend is actually getting worse. For example, in 2016, India increased tariffs on telecommunications equipment. Likewise, medical equipment and devices, such as pacemakers, coronary stents and surgical instruments, and parts of medical devices imported to India now face a 7.5 percent basic customs duty, 12.5 percent additional duty and a 4 percent special additional duty.
Other cliff-high tariffs include 50 percent to 113 percent on agricultural goods, flowers (60 percent), natural rubber (70 percent), automobiles and motorcycles (60 percent to 75 percent), raisins (100 percent), alcoholic beverages (150 percent) and textiles (some rates exceed 300 percent), according to the U.S. International Trade Administration.
India’s taxes on foreign-made goods are another major problem. Imports are subject to state level sales taxes and the Central Sales Tax, as well as various local taxes and charges. In some cases the government is also imposing price caps on American manufactured goods. This is especially the case with American medical devices, including stents and implants.
Taken together, Indian tariffs, taxes and price controls are having the effect of driving American producers out of the Indian market — or forcing them to suffer unacceptable losses.
Some American companies are being singled out for abuse. A good example is Apple. The company is the second largest producer of Smart phones in the world. India is the second market for Smart phones. However, Apple accounts for just 2 percent of India’s domestic market for Smart phones. Moreover, India is making it exceedingly difficult for Apple to set up its manufacturing plants in India.
The issue has been raised with India in the past but the government has refused to address it squarely. The Finance Ministry claims that the matter is in the hands of the country’s trade agencies, the GST and the GAT, but these agencies have refused to act. It’s the classic regulatory run-around.
Protest over India’s trade policies is growing. This week the Advanced Medical Technology Association asked the U.S. Trade Representative to suspend or withdraw, in whole or in part, India’s benefits under the General System of Tariffs. The USTR recently won a case filed before the World Trade Organization over India’s attempts to force solar cells sold in India to include a high percentage of India-manufactured component
President Trump, who has eagerly promoted the idea of a close U.S. strategic partnership with India and enjoys warm relations with the country’s conservative Prime Minister Narendra Modi, is aware of the growing controversy. In a speech last March, he assailed India’s policy of imposing a 100 percent tax on imports of Harley-Davidson motorcycles. He didn’t actually identify India by name, but the country’s leaders surely got the message. Their newfound strategic ally is displeased.
The Trump administration needs to raise the trade deficit issue to a higher level of bilateral diplomacy. In the past Mr. Trump has complained loudly about countries like Mexico and China exploiting their trade deficits with America. The administration need not denounce or criticize India publicly — too much is at stake.
However, USTR should meet with his Indian counterpart and survey the status of trade policy. The USTR needs to insist on greater transparency in India’s regulatory policies. Trade is only one issue that should be on the table. India is also failing to observe U.S. intellectual property rights. It is currently one of the worst offenders in the world. Our tolerance in this area is wearing thin. India’s confusing maze of tax policies is also frustrating the pace of foreign investment.
Congress, which has not really tackled these issues thus far, should weigh in behind the administration’s new overtures to India. India is moving in the right direction as a whole — liberalizing many sectors and encouraging foreign investment. Mr. Trump needs to convince Mr. Modi to allow for expanded U.S. exports and to facilitate more foreign direct investment. However, he should be prepared to engage in creative deal-making to obtain these concessions.
A growing trade deficit with India is not in the American interest. Working to resolve this issue now — rather than letting it fester — is essential to keeping our strategic partnership with India on course.
• Stewart Lawrence is a Washington writer.
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