U.S. Trade with India
In the recent decade international trade has grown considerably as technologies improve to facilitate communications and trading. Among the nations that have grown in trade within this last decade is India. With a population of over 1. 1 billion people and a population growth of an estimated 1. 3 percent a year (India News and Media, 2009), India is the world’s twelfth largest economy. In Asia India has the third largest economy following Japan and China.
Partly due to India’s swift economic expansion and also because of shared values and improved relations the United States (US) and India have been pursuing a trade partnership since 2004 (Martin & Kronstadt, 2007, p. 1). In a report prepared by Michael Martin and Alan Kronstadt (2007, p. 31) they state that according to US official trade statistics bilateral merchandise trade with India in 2006 reached nearly $32 billion, a far jump from the $10 billion trade of 1996.
Among the top commodities exported by India to the US are: cotton household furnishings and clothing, jewelry and gems, medical, dental and pharmaceutical preparations, electrical machinery, woven and knit apparel and fertilizers. On the other hand, top exports of the US to India are aircrafts, chemical fertilizers, telecommunications equipment, jewelry and petroleum products. Trade in services is also grown totaling over $10 billion in 2005. In services, trade in transportation services from the US to India, while trade of professional services from India to the US played key roles in the strength of trade in services.
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India and the US have not undertaken any specific bilateral trade agreement or investment treaty. Presently trade relations between India and the US are principally established and governed by their memberships in multilateral organizations such as the World Trade Organization (WTO). India is known for its complex and ambiguous tariff system. Because India has a high average tariff rate, and a complicated system that differentiates even similar products, it becomes difficult for exporters to correctly identify the applicable tariffs.
To further complicate, India also applies a standard of Most Favored Nation tariff rates to those where trade is preferred. India also controls importation into their nation through a list of banned or prohibited goods, a list of restricted items that requires an important license and “canalized” goods that are importable only through government trading monopolies. In 2007, apart from the tariff system and import restrictions a report created by the US was critical of other trade regulations of India seen as indirect trade barriers (Martin and Kronstadt, 2007).
Among those cited by the US are: trade distorting subsidies provided to fertilizers, extensive documentation requirements, discretionary valuation to import transactions, sanitary certification requirements that seem to have questionable scientific standards. Because of these restrictions India and the US often have trade conflicts in the sectors of agriculture, textile and manufacturing industrial goods. As an example in agriculture, US exports of coffee, tea and most grains are hindered by India’s tariff rates of as high as 100%.
In 2007, US wheat was determined to be unfit for importation by the Indian government because of the presence of weeds. Of most contention are the duties imposed by India on wines and distilled spirits, a dispute currently being settled through the WTO. To address these conflicts and to preserve the trade relations, India has considerably lowered its tariff rates through the years of 1992 – 2007. Similarly most of India’s import restrictions have been lifted.
While disputes in the above mentioned sectors continue, government policies such as the Verified End User Program which allows faster access to US technological products to qualified Indian companies, the US Generalized System of Preference which allows for tariff-free importation from designated developing countries and US-India Economic Dialogue that aims to provide a venue for the two countries to discuss and negotiate areas of trade conflict and the Doha Round Negotiations which aims to further liberalize both trading markets have the potential of improving the future trade between the two nations.
India News and Media. (2009). Reference: India Information. India News and Media website. 2 March 2009 from http://www.india-news.in/reference/india-demographics.php
Martin, Michael F. and Kronstadt, K. Alan. (2007). India-U.S. Economic and Trade Relations. Federation of American Scientists. 2 March 2009 from http://www.fas.org/sgp/crs/row/RL34161.pdf