Context:
The ongoing trade discussions between the US and India have been marked by concerns over non-tariff barriers affecting market access, particularly for American businesses. These barriers are being addressed through side letters exchanged between trade ministers from both countries, outside of the official framework of the Early Harvest Trade Agreement (ECTA).
Key Concerns Raised by the US:
- Non-Tariff Barriers:
- US Vice President JD Vance has urged India to remove these barriers, which restrict the ability of American companies to access Indian markets.
- The United States Trade Representative (USTR) flagged concerns in its National Trade Estimate report, highlighting issues such as:
- India’s DPDP Act: The USTR warned that draft rules of India’s Data Privacy and Protection Act (DPDP) could impose burdensome requirements on businesses, particularly data fiduciaries, and force personal data disclosure to the Indian government.
- Cross-Border Data Transfer Restrictions: The rules also propose the ability to restrict data transfers to certain countries, which could affect international businesses.
- Sector-Specific Data Localization: The draft rules may introduce data localization requirements that would mandate companies to store data within India.
- Local Content and Market Access Issues:
- The Coalition of Services Industries (CSI), including major US firms like Google, Amazon, and Mastercard, raised multiple concerns:
- Local Content Requirements: These requirements create barriers for foreign companies to compete in India’s market.
- Favoritism towards UPI and Rupay: The dominance of India’s Unified Payments Interface (UPI) and Rupay cards creates an uneven playing field.
- Telecom Equipment Certification: The mandatory testing and certification of telecom equipment can increase costs and delays for foreign companies.
- Differential Tax Treatment: The disparity in tax treatment between Indian and foreign firms is another point of contention.
- Customs Duties on IT Products: High duties on information technology products also remain an issue.
- The Coalition of Services Industries (CSI), including major US firms like Google, Amazon, and Mastercard, raised multiple concerns:
- Quality Control Orders and Trade Barriers Across Sectors:
- Quality Control Orders: The numerous orders issued by the Indian government on various products are a source of frustration for US companies.
- Sector-Specific Barriers: Sanjay Notani, senior partner at Economic Laws Practice, emphasized the need to understand these barriers sector-by-sector. He pointed out that issues range from local content requirements, licensing, standards, and testing in industries like metals, chemicals, capital goods, and telecom.
Trade Deal Negotiations:
- Bilateral Trade Agreement (BTA):
- US Treasury Secretary Scott Bessent expressed expectations that India would strike its first bilateral trade deal to avoid reciprocal tariffs imposed by President Donald Trump.
- A negotiating team from India’s Commerce Department, led by Rajesh Agrawal, the Chief Negotiator and Commerce Secretary-designate, recently visited Washington DC to work on the trade deal.
- Both countries aim to conclude the first tranche of the BTA by the fall of 2025. However, India is hoping to finalize an early tranche by July 8, 2025, to prevent the expiration of the current pause on country-specific tariffs.
The trade discussions between the US and India have underscored significant challenges posed by non-tariff barriers in various sectors. While both countries have committed to resolving these issues, the complexity of these barriers requires a sector-by-sector approach to ensure mutual market access and fairness. The ongoing negotiations aim to secure a trade deal that addresses these concerns and avoids the imposition of reciprocal tariffs, with hopes of finalizing key agreements in the coming months.
