Trade relation between India and USA

India-USA Trade Relations: A Comprehensive Overview

Abstract

The economic partnership between India and the United States has become a strong alliance, driving mutual growth and investment opportunities. This report examines key trade agreements, investment patterns, tariff policies, intellectual property rights (IPR), and conflict resolution mechanisms. Despite cooperation, challenges like trade imbalances and market access barriers remain. The report concludes with strategies to enhance economic ties.

Introduction

2.1 Overview of India-USA Trade Relations

• Strong Strategic Ties: The relationship has evolved into a major strategic and commercial partnership.
• Bilateral Trade Volume: Goods and services trade reached $190 billion recently, making the USA India's largest trading partner.
• Key Traded Goods: Pharmaceuticals, textiles, IT services, machinery, and agricultural products are prominent.
• Cooperation: Joint development in defense, energy, and digital trade is ongoing.
• Challenges: Policy leaders address issues like tariffs, market access barriers, and regulatory standards.

2.2 Importance of Trade Agreements

• Facilitation: They enable cross-border trade, investment, and innovation.
• Clear Frameworks: Agreements establish rules for tariff cuts, IPR protection, and dispute resolution.
• Equitable Conditions: These create fair market conditions for businesses and consumers.
• Continuous Development: Lead to ongoing economic growth for both nations.

2.3 Objectives of the Report

• Analyze bilateral trade patterns (goods, services, investments) and industry changes.
• Assess the scope and impact of trade agreements.
• Evaluate tariff reduction policies and their effects.
• Examine IPR policies and dispute resolution systems.
• Analyze trade imbalances and future partnership opportunities.
• Provide strategic recommendations for improving economic unity.

3. Historical Background of India-USA Trade Relations

3.1 Evolution of Bilateral Trade

• Early Stages (1950s-60s): Limited trade focused on US agricultural products and development aid to India.
• 1991 Economic Reforms: India's shift to a market-based economy led to rapid trade and FDI growth.
• 2000s Transformation: India became a key partner; IT services, pharmaceuticals, and textiles exports grew significantly.
• Current Status: Bilateral trade exceeds $190 billion, with the USA as India's primary trading partner.

3.2 Key Milestones in Trade and Investment Relations

• 1950s-70s: US development assistance (e.g., PL-480 food aid program); trade was restricted due to India's protectionist policies.
• 1991: India's liberalization spurred FDI from US companies and growth in IT outsourcing.
• 2005: The US-India Civil Nuclear Agreement boosted collaboration in energy and technology.
• 2015: India became the ninth-largest trading partner of the US, with record trade volumes.
• 2019: US removed India's Generalised System of Preferences (GSP) privileges, impacting Indian exports.
• 2021-Present: Focus on developing economic partnerships.

4. Key Trade and Investment Agreements

4.1 A Synopsis of Trade Agreements

• No Formal FTA: While there's no Free Trade Agreement, various agreements address IPR, trade barriers, investment flows, and tariff reductions.
• Focus: These agreements have improved market access and fostered cooperation in sectors like energy, technology, defense, and pharmaceuticals.

4.2 Date of Signing and Purpose of Each Agreement

Agreement	Date of Signing	Purpose and Key Features
Trade Policy Forum (TPF)	2005	Bilateral platform to address trade issues, resolve disputes, enhance cooperation; focuses on agriculture, investment, innovation, and services.
US-India Civil Nuclear Agreement (123 Agreement)	2005 (Operationalized in 2008)	Enabled civilian nuclear cooperation, boosting India's energy security and creating opportunities for US companies in India's nuclear sector.
US-India Investment Initiative	2014	Facilitates investment flows between the two nations, focusing on infrastructure, renewable energy, and manufacturing.
US-India Strategic and Commercial Dialogue	2015	Strengthens economic ties by promoting trade, investment, and business cooperation across various industries.
Generalized System of Preferences (GSP) Program	Until 2019	Allowed duty-free entry of some Indian goods into the US market. Revoked in 2019 due to concerns about market access and trade barriers.
US-India Bilateral Agreement on Intellectual Property Rights (IPR)	2016	Strengthened IPR protection, benefiting technology, pharmaceuticals, and creative industries.
US-India Energy Partnership	2021	Focuses on renewable energy, clean technology, and climate cooperation, with significant investments in solar, wind, and green hydrogen projects.
India-USA Initiative on Critical and Emerging Technology (iCET)	2023	Aims to deepen collaboration in AI, quantum computing, semiconductor manufacturing, and defense technology.

5. Trade and Investment Patterns

5.1 Trends in Bilateral Trade

• USA as Top Partner: The US is now India's largest trading partner.
• Trade Volume: Reached $190 billion in 2023.
• India's Exports to the USA: Pharmaceuticals, IT services, textiles, gems/jewelry, machinery, organic chemicals. USA is the primary receiving nation for India's exports. India's largest export sector to the USA is IT services.
• India's Imports from the USA: Crude oil, aircraft, medical equipment, advanced tech, soybeans, almonds. US is a primary supplier of high-end technology, defense equipment, and machinery to India.
• Trade Balance: India currently has a trade surplus with the USA (India exports more than it imports). The annual surplus for India in 2023 was approximately $32 billion.
  • The US government is aiming for better market opportunities for American exports to India to address this imbalance.

5.2 Major Sectors and Industries Involved

• IT Services: India exports software, cloud computing, and BPO services.
• Pharmaceuticals: India is the principal exporter of generic drugs to the US, supplying 40% of all generic drug imports.
• Energy: India imports crude oil, LNG, and renewable energy technology from the USA.
• Defense: US companies supply India with defense equipment.
  • Example: Boeing and Lockheed Martin.
• Agriculture: USA exports almonds, apples, and soybeans; India exports spices, tea, and marine products.
• E-Commerce: Amazon and Walmart (Flipkart) have significantly invested in India's digital retail sector.

5.3 Foreign Direct Investment (FDI) and Economic Cooperation

• US FDI in India: Over $60 billion; key sectors include IT, telecom, energy, manufacturing, and financial services.
  • Examples: Google, Amazon, Microsoft, and Tesla are expanding their operations in India.
• Indian FDI in the USA: Exceeds $12 billion, creating jobs in the US.
  • Examples: IT companies (TCS, Infosys, Wipro), pharmaceutical companies (Sun Pharma, Dr. Reddy’s).
• Key Economic Cooperation Initiatives:
  • US-India CEO Forum.
  • Investment Facilitation Agreements.
  • iCET framework (AI, quantum computing, semiconductors).

6. Tariff Reduction and Elimination

6.1 Existing Tariff Barriers

• India's Tariffs on US Goods:
  • High import taxes on vehicles (up to 100%), alcohol, and dairy.
  • Customs duties of 25%-50% on agricultural imports like apples, almonds, and walnuts.
  • Price regulations and tariffs on medical devices and pharmaceuticals restrict US businesses in the healthcare sector.
• US Tariffs on Indian Goods:
  • Tariffs on steel (25%) and aluminum (10%) exports under Section 232 of US Trade Expansion Act.
  • Import barriers of 10%-20% on textiles and apparel.
  • Removal of India's GSP status led to increased tariffs on over 2,000 Indian items.

6.2 Trade Facilitation Measures

• Trade Policy Forum: Addresses trade disputes related to tariffs and market access.
• Strategic and Commercial Dialogue: Enhances economic ties through trade facilitation agreements.
• Continuous Dialogues: Focus on lowering duties on semiconductors, tech equipment, and agricultural items.
• E-Commerce: Streamlining regulations for e-commerce, digital payments, and technical services.
• Mutual Recognition Agreements (MRAs): Simplify customs and reduce technical trade barriers.

6.3 Impact on Key Industries

• IT Sector: Lower tariffs on electronics and software will increase India's global IT exports.
• Pharmaceuticals: Reduced US tariffs on Indian generic drugs will improve access to affordable healthcare.
• Agriculture: Reductions on US agricultural exports to India and lowered tariffs on Indian spices will boost both sides.
• Automobiles: Reduction of India's 100% tariff on luxury cars could increase exports of cars from the US but India will want lower tariffs on auto components.
• Steel and Aluminum: Resolution of US restrictions will increase Indian industrial output.

7. Intellectual Property Rights and Dispute Resolution

7.1 India-USA IPR Framework

• Foundation: IPR is critical for trade in pharmaceuticals, technology, and entertainment.
• Mutual IPR Guidelines: Protect patents, trademarks, copyrights, and trade secrets.
• Agreements and Initiatives:
  • US-India Bilateral Agreement on Intellectual Property Rights (2016).
  • IPR Working Group under TPF.
  • India's membership in WTO's TRIPS Agreement (1995).
  • India’s 2016 National IPR Policy.

7.2 Key Provisions and Challenges

• Indian Patent Protection: 20 years, particularly focused on pharmaceuticals.
• Trademark & Copyright: 10-year terms with renewal options; adheres to Berne Convention.
• Compulsory Licensing: India's use of compulsory licensing for essential medicines is an issue for US pharma companies.
• Trade Secret Protection: Through contracts, as there is no specific trade secrets law.

7.3 Challenges in India-USA IPR Relations

• Patent Protection in India: Section 3(d) of the Indian Patents Act restricts patents on drug development enhancements, impacting pharma companies.
• Counterfeit Goods & Piracy: Continue to be problems in India.
• Software Piracy and Digital Content: Concerns by US authorities over insufficient enforcement.
• GM Crops: Dispute over genetically modified crops.

7.4 Dispute Resolution Mechanisms

• Trade Policy Forum: Main structure for examining and settling IPR disputes.
• WTO Dispute Settlement: Used for IPR disputes related to pharmaceuticals and agricultural products.
• Strategic and Commercial Dialogue: Addresses IPR concerns and trade barriers.
• Special 301 Report: USA reviews India’s IPR, resulting in its placement on the Priority Watch List.
• Resolution of US companies' disputes in India: Through Indian courts, arbitration, and investment treaties.

8. Other Key Aspects of Trade Agreement

8.1 Services Sector Collaboration

• Importance: The services sector is critical for mutual trade activities between the US and India.
• Sectors:
  • IT & BPO: India is a leading provider of IT services, software solutions, and BPO.
    • Examples: Google, Microsoft, Amazon major investments in Indian IT.
    • Challenges: US H-1B visa policy impacts Indian professionals; negotiations aim to loosen restrictions.
  • Financial Services: US financial institutions gain access to banking, insurance, and investment sectors in India.
  • Healthcare and Pharmaceuticals: Indian pharma companies provide most generic drugs to the US market.
  • Education and Research Cooperation: Research collaborations, student/faculty exchanges, and tech-based learning.

8.2 Technology Transfer and Digital Trade

• Focus: AI, cybersecurity, semiconductor manufacturing, and fintech.
• Initiative on Critical and Emerging Technologies (iCET): Launched in 2023 to deepen collaboration in areas like AI, quantum computing, semiconductors, and space tech.
• Data Governance and E-Commerce:
  • US companies like Google, Amazon, and Walmart dominate India's digital economy.
  • Disagreements over India's data localization regulations.
  • A Digital Trade Agreement is being discussed to streamline e-commerce.
• 5G and Cybersecurity Collaboration:
  • Collaboration on secure digital infrastructure and cybersecurity regulations.
  • US encourages India to diversify 5G suppliers.

8.3 Labor and Environmental Standards

• Importance: Ethical business practices and sustainability are crucial for trade agreements.
• Labor Standards: USA has concerns about labor rights in manufacturing and textile sectors; India aims to adhere to international labor standards.
• Climate Change and Environmental Sustainability:
  • Collaboration on climate finance, carbon reduction, and clean energy.
  • US-India Climate and Clean Energy Agenda 2030 Partnership.
  • US companies invest in solar, wind, and electric vehicle industries.

9. Challenges and Opportunities

9.1 Trade Imbalances and Market Access Issues

• Challenges:
  • Trade deficit ($42 billion in 2023) with India exporting more than it imports from the USA.
  • Agricultural trade barriers for US dairy and poultry products.
  • US steel and aluminum tariffs impacting Indian exports.
  • Patent protection issues faced by American pharma businesses in the Indian market.
  • Indian policies on price control of healthcare devices and drug licensing.
  • Data localization requirements creating disputes between India and US tech companies.
• Opportunities:
  • Trade arrangements focused on balance to reduce trade gaps.
  • Trade diversification in renewable energy, AI, cybersecurity, and semiconductors.
  • Easing investment restrictions and simplifying regulatory hurdles to attract FDI.

9.2 Policy Challenges and Negotiation Roadblocks

• Challenges:
  • Delays in negotiating FTAs or comprehensive economic partnerships due to political and economic hurdles.
  • US immigration policies and reduced H-1B visa provisions.
  • Tariffs by both countries on essential goods.
  • IPR concerns, with US concerns on Indian patent policies and India wanting access to American tech innovation.
• Opportunities:
  • Strengthening US-India Trade Policy Forum (TPF) to handle business disputes.
  • Establishment of uniform standards in pharmaceuticals, biotech, and data security.
  • Foreign business opportunity to invest in India’s infrastructure development.

9.3 Potential Areas for Future Collaboration

• Technology and Innovation:
  • Cybersecurity and data governance with joint measures for cyber defense.
  • Semiconductor and AI collaboration through iCET.
  • Digital trade agreements to boost e-commerce, fintech, and data-driven markets.
• Energy and Sustainability:
  • Renewable energy partnerships to invest in solar, wind, and green hydrogen.
  • Collaboration on climate commitments through the Clean Energy Agenda 2030 Partnership.
• Defense and Security:
  • Defense trade and co-production to extend military tech development.

10. Conclusion and Recommendations

Summary of Key Findings

• The US is now India's primary trading partner, with commercial ties exceeding $190 billion in 2023.
• Successful sectors include IT services, pharmaceuticals, energy, defense, and e-commerce.
• Agreements like TPF, the Strategic and Commercial Dialogue, and iCET help address market access issues.
• Challenges remain, such as trade imbalances, tariff barriers, IPR disputes, and regulatory restrictions.
• Opportunities exist for collaboration in renewable energy, semiconductors, AI, defense tech, and digital trade.

Policy Recommendations for Strengthening Trade Relations

1. Prioritize the elimination of trade barriers:
   • Implement focused trade agreements for pharmaceuticals, agriculture, and digital sectors.
   • Consider restoring India's GSP benefits for duty-free access to particular Indian goods.
   • Reduce tariffs on key Indian sectors (auto components, steel, textiles) and US agricultural products.
2. Improve FDI and economic cooperation initiatives:
   • US investment should focus on smart cities, semiconductor production, and digital infrastructure.
   • Reduce restrictions in financial services and insurance sectors.
3. Enhance cooperation by strengthening IPR enforcement:
   • Evolve IPR policy to enhance patent protections while maintaining access to affordable medicines.
   • Create enhanced platforms within TPF to resolve business conflicts quickly.
4. Expand Technology and Digital Trade Cooperation:
   • A digital trade agreement should establish policies to regulate e-commerce, data transmission and cybersecurity standards.
   • Expand the iCET framework for joint investments in semiconductors, AI, and 5G.
5. Strengthening Energy and Climate Partnerships:
   • Work together under the US-India Clean Energy Agenda 2030 for renewable investments.
   • Promote sustainable trade and green supply chains, and climate friendly investment.