India-US trade deal: What's the deadlock about? Top issues blocking agreement as Donald Trump's 26% tariff deadline looms
India and the US are racing to seal a trade deal ahead of American President
Donald Trump
's July 9 deadline, when 26% reciprocal tariffs on Indian goods will kick in. Despite India's chief negotiator Rajesh Agarwal and his team extending their stay in Washington for discussions, talks are stuck on certain issues on either side.
Trump has suggested that extending the reciprocal tariff suspension period to beyond July 9 is unlikely. He has, however, also expressed hope of a trade deal with India in the coming days. Earlier this week, Trump emphasised that the United States and India are nearing completion of a trade agreement that would significantly reduce current tariffs, allowing fair competition between both nations.
"I think we are going to have a deal with India … and if they do that, we are going to have a deal for much less tariffs," Trump said.
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Without an interim trade deal agreement, Indian industries must prepare for a 26% tariff.
It's important to note that the US is also eager to close a deal since Trump needs to demonstrate success through trade agreements with nations like the UK, China and India to encourage other countries to negotiate.
Biggest Thorn: Access For US Agriculture Products
India is taking a firm stance against US pressure in the proposed trade agreement, particularly regarding reduced tariffs on American agricultural imports such as maize and soybean, according to a TOI report.
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The US seeks reduced tariffs on maize, soybean, dairy products, apples, and various fruits and nuts. It is seeking market access for numerous products, including dairy, poultry, corn, soybeans, rice, wheat, ethanol, citrus fruits, almonds, pecans, apples, grapes, canned peaches, chocolates, cookies, and frozen French fries.
However, this presents a significant challenge for the Modi government, considering the substantial number of small-scale farmers dependent on these commodities and potential political implications.
The primary concerns revolve around protecting domestic farmers and addressing health-related issues associated with genetically modified products.
While India is open to increasing access for US dry fruits and apples, it remains resistant regarding corn, soybeans, wheat, and dairy products.
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The dairy sector is particularly sensitive in India due to cultural and dietary preferences. Indian consumers express concerns about US cattle feeding practices involving animal by-products, which conflict with Indian dietary customs.
India has consistently declined to open its agriculture and dairy sectors in free trade agreements with Australia and the UK, and has expressed similar reservations to the EU. The US maintains that a trade agreement without reduced agricultural duties is unacceptable, even with limited quantity provisions.
India is also maintaining its prohibition on genetically modified food crops, whereas US corn and soybean production predominantly involves GM varieties.
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India-US trade deal: India eyes middle ground, mulls GM-free 'self-certification' for US food imports as Donald Trump's tariff deadline nears
An ET report suggests that to solve this deadlock, India is mulling the introduction of a 'self-certification' mechanism for US exporters to fulfil India's stipulations on GM-free/non-GMO status of imported goods whilst making the procedure more efficient.
Under this framework, the United States would be required to maintain a current list of food crops where 'no GM event' has received approval. Furthermore, the US would need to establish an online database listing food crops with approved GM events, enabling Indian officials to make well-informed decisions regarding imports.
Zero Tariff Demand
During initial talks, India sought duty-free market access for various products including textiles, leather goods, pharmaceuticals, engineering goods and auto parts. The US has essentially dismissed the possibility of immediate zero tariffs.
The US negotiators, whilst eager to conclude the agreement, have conveyed to Indian officials that the Trump administration cannot immediately eliminate tariffs. India has also requested protection from subsequent tariff impositions after finalising the agreement.
Indian government officials consider the Trump administration's proposed 10% baseline tariff for all nations not good enough for India.
But, they have also informed exporters that a 10% base tariff under Trump's administration would still advantage Indian businesses compared to competitors facing reciprocal tariffs.
Several industry representatives have held private discussions with the commerce department officials, advocating acceptance of the US administration's terms.
However, the government remains committed to securing a balanced agreement.
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Industry Concerns
US negotiators are seeking concessions on cars and whiskey imports, but Indian officials express concern over inadequate reciprocal benefits for their key export sectors. These sectors include textiles, garments, leather products, footwear, engineering products and automotive components.
Additionally, there are concerns that specific automotive parts, along with iron and aluminium products, might remain subject to sectoral tariffs.
These items currently face supplementary sectoral duties ranging from 25% to 50%, based on the product category.
Ethanol Imports
India's Ethanol Blended Petrol (EBP) programme aims primarily to reduce reliance on imported energy through the combination of locally-produced ethanol with petrol. Due to substantial investments from Indian companies, India stands close to reaching its target of 20% ethanol blending. Any ethanol imports from the US could potentially harm these domestic enterprises, says a Reuters report.
The EBP initiative additionally serves to handle excess production of rice, sugarcane and corn by channeling these crops towards ethanol manufacturing. The introduction of American ethanol imports would significantly impact India's growing distillery industry in an adverse manner.
Will A Trade Deal Happen? Key is 'Interim'
A
recent report in Financial Times indicates that India and the US may seal an interim trade deal as early as the end of this week.
Although there are differing stances, India and US seem to be progressing towards an interim trade deal ahead of the first phase of the bilateral trade pact by Fall (Sept-Oct), the timeframe established during PM Narendra Modi and Trump's earlier meeting this year.
At a discussion with exporters on Monday, commerce and industry minister Piyush Goyal remained open to the prospect of an agreement in the coming days, indicating that sectors excluded from the first phase should remain optimistic as additional items would be incorporated in subsequent rounds.
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