Exclusive: India hoping to close settlement on seven trade disputes during Modi’s visit to the US

The US and India have had a number of disagreements on trade in recent years, including a dispute over steep steel and aluminium tariffs imposed by the US in 2018.

India and the US are in talks for an out-of-court resolution of seven trade disputes at the World Trade Organisation (WTO) during the ongoing India-US visit, commerce ministry sources have told Moneycontrol.

The discussions are at advanced stages and a resolution may come very soon, sources added.

Prime Minister Narendra Modi is on a three-day state visit to the US from June 21, during which various strategic issues, especially on trade between the two countries, are expected to be discussed.

An out-of-court settlement over disputes is the only option right now as the WTO’s appellate body for settlement of disputes remains dysfunctional with the US blocking the appointment of judges. According to the WTO, the US has systemic concerns about the appeals court.

Trade disputes between US and India

The US and India have had a number of disagreements on trade in recent years, including a dispute over steep steel and aluminum tariffs imposed by the US in 2018.

Another point of difference between the two nations was over India’s export subsidy programmes, including the Export-oriented Units Scheme and sector-specific schemes, including the Electronics Hardware Technology Parks Scheme, the Merchandise Exports from India Scheme, the Export Promotion Capital Goods Scheme, Special Economic Zones, and a duty-free imports for exporters programme.

The US has alleged that these subsidies offer financial benefits to Indian exporters, allowing them to sell goods cheaply to the detriment of American workers and manufacturers, in violation of WTO norms that bar subsidies that distort global trade.

There is also a difference of opinion with regard to “additional duties applied by India on certain imports of US goods”, as per a US-initiated WTO dispute against Indian duties on US imports.

Although agricultural products are not the largest component of US-India trade, tensions over them are long-standing and remain among the most difficult to resolve.

The US had in 2012 also requested consultations with India under the dispute settlement system concerning the latter’s import restrictions on agricultural products from that country, as per information available on the WTO website.

One of the biggest dairy markets in the world, India has limited US access to it. Negotiations over US dairy products have gone on for years. India has mandated that only dairy products derived from cattle raised on a vegetarian diet for their entire life can enter the country and has defended its position on religious and cultural grounds. In some US dairy farms, cattle are fed dietary supplements that are not vegetarian. India rejected US proposals in 2015 and 2018 for consumer labels indicating the diet of dairy animals.

The US continues to press New Delhi, including through the India-United States Trade Policy Forum (TPF), to provide greater access to the Indian dairy market. India’s support to its agricultural sector including the minimum support price (MSP) also remains a topic of contention between the two countries at the WTO. The US contention is that India’s announcement of MSPs can have the effect of providing a subsidy to the entire crop by distorting market prices and bolstering planting decisions, resulting in overproduction and limited demand for imports, said a WTO expert, not wanting to be identified.

In June 2019, following the US withdrawal of India’s preferential tariff benefits under the Generalised System of Preferences (a US trade preference program which provides opportunities to specific countries to grow their trade), India implemented retaliatory tariffs, ranging from 1.7 percent to 20 percent, on 28 different products imported from the US, including almonds, apples, walnuts, chickpeas, lentils, phosphoric acid, boric acid, diagnostic regents, binders for foundry moulds, select steel and aluminium items and threaded nuts.

India had originally drafted the tariffs in June 2018 in retaliation against the US decision to implement tariffs on US imports of steel and aluminium articles.

The US also claims India is putting up digital trade barriers. “India’s proposed regulations on digital trade and electronic commerce include data localization requirements and restrictions on cross-border data flows could serve as a barrier for a wide range of bilateral goods and services trade,” the National Trade Estimate Report 2022 released by the US Trade Representatives (USTR) on Foreign Trade Barriers reads.

US emerges as India’s biggest trading partner

Trade between the two countries has reached a record high and the US has emerged as India's biggest trading partner. According to the provisional data of the Commerce Ministry, bilateral trade between India and the US has increased by 7.65 percent to $128.55 billion in 2022-23 against $119.5 billion in 2021-22. It was $80.51 billion in 2020-21.

The US has been nudging India to join the US-led Indo-Pacific Economic Framework’s (IPEF) trade pillar, which is another issue likely to be discussed during the visit.

India has signed up for three pillars of the IPEF—a commitment to building more resilient supply chains, tapping clean energy opportunities, and combating corruption—but has opted out of the fourth pillar (trade), citing reservations about the commitments required on environment, labour, digital trade and public procurement.