McLARTY INDIA UPDATE: Updates on US-India sanctions and trade discussions

November 5, 2018
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  1. On October 30, the Trump administration denied de minimis waivers to 94 products, including 50 from India (total exports of those 50 products is valued at US$72.5mn), meaning that these products will no longer qualify for GSP benefits.
  2. India received an initial waiver from the Trump administration to continue purchasing Iranian oil until March 2019.
  3. The Trade Policy Forum, which was set to take place last week, was postponed due to the lack of progress on trade negotiations between the US and India.
  4. It is unlikely that India will make serious concessions prior to its general elections in April 2019.

Last week saw a number of developments in the US-India relationship, both on the trade front and the sanctions front.

Generalized System of Preferences (GSP):

On October 30, President Trump signed a presidential proclamation, denying de minimis waivers to 92 products. In the GSP rules, there is a stipulation that any country that exports to the US over 50% of total US imports of a product or exceeds a total value (US$180mn in 2017). This is known as the competitive-need limitation, and a waiver (the de minimis waiver) is needed to continue importing those products duty-free. These waivers used to be routine, but the Trump administration has decided not to grant anymore of these waivers.

Of the 92 products that did not receive a de minimis waiver, 50 of them are imported from India. This is not surprising as India is the largest beneficiary of the GSP program (partially why the stalled trade talks between India and the US on a “trade package” are focused on India removing certain trade irritants in exchange for the US dropping its review of India’s eligibility to be a part of the GSP program). Last year, India exported US$72.5mn of these 50 products to the US – these products will now be subjected to the most favored nation tariff rate.

Iran Sanctions:

On a different front – November 4 marked the deadline for countries to come into compliance with the Trump administration’s demand that all oil imports from Iran be reduced to zero. However, the Trump administration has seemingly backed off from this demand, and has noted that it is “prepared to work with countries that are reducing their imports on a case-by-case basis.” India is one of the countries that will be hardest hit by the re-imposition of sanctions on Iran (it is the second largest market for Iranian oil after China) – and it will be hard for India to get to zero imports from Iran. Some Indian refineries are set up to process Iranian crude and will require technical adjustments to change.

India raised this issue with Secretary Pompeo and Secretary Mattis in early September at the inaugural “2+2” dialogue, and Special Representative for Iran Brian Hook and Assistant Secretary of State for Energy Resources Frank Fannon visited India in October to continue the discussions with the Ministry of External Affairs and the Ministry of Petroleum. Since then, India appears to have cut its monthly crude oil imports from Iran by 50%, in an effort to gain a waiver from the sanctions – and its efforts have paid off. On November 5, Secretary Pompeo announced that India, along with 7 other countries, has been granted a temporary waiver until March 2019 to continue decreasing its purchase of Iranian oil.

Trade Policy Forum Talks:

Last week, US Trade Representative Ambassador Robert Lighthizer was supposed to visit India for the Trade Policy Forum, a meeting with his counterpart, Minister of Commerce and Industry Suresh Prabhu. The two sides have been negotiating a trade package, which has focused on medical device price controls, agricultural market access, and on the Indian government’s decision to increase tariffs on ICT products. In exchange for resolving those issues, the US would drop its review of India’s eligibility in the GSP program.

However, throughout the negotiations, the issues have become wider and progress has stagnated. The Reserve Bank of India’s mandate that all payment companies must localize data within India has only added to the long list of issues that US companies have with the Indian market. With progress seemingly stalled, US negotiators want India to show some flexibility on these issues. Not only was Ambassador Lighthizer set to visit India last week, but Secretary of Commerce Wilbur Ross was set to visit India in December. Now, both of those visits are off, and the two sides are seemingly at a stalemate once again, with an end not in sight. With the Indian general elections on the horizon, it is unlikely that any progress will be seen until then – trade liberalization has historically not played well to the domestic crowd.

232 Retaliatory Tariffs:

In June, India decided to impose retaliatory tariffs on 29 US products due to the US’ imposition of Section 232 tariffs on steel and aluminum. The tariff increases were set to go into effect in August, but were postponed until September, to allow negotiators more time to work on a trade package deal. The tariff increase was postponed again until November 2, and it was announced late on November 1 that the retaliatory tariffs will be postponed again until December 17.

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