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India - US Trade Conflict

Posted by Ashutosh Nath

7/3/19 1:55 PM

India-US Trade Conflict

Finally, the gloves are out from both sides. The Indian Government has decided to implement retaliatory duties on 28 goods originating in or exported from the US. The increased tariffs have been made applicable from June 16, 2019.

Last year during March, the US Government announced a 25% tariff on steel and a 10% import duty on aluminum products. This move struck the Indian steel industry severely as the US is the seventh largest market for this particular industry. 

In response, India also proposed to impose duties on goods originating in or exported from the USA in June 2018. However, India kept postponing the implementation of the same as some talks were going on in the backdrop.

The trade difference between both the countries reached an unprecedented level when the US decided to withdraw the benefits under the Generalized System of Preference (‘GSP’) scheme from June 2019. Under the GSP program, exporters from specified countries are eligible for duty-free access to the US market. India was the largest beneficiary of the GSP scheme.

This move will have a significant impact on India as the US is one of the largest markets for Indian exporters. At present, India’s goods exports to the US are over $54 billion out of which around $5 billion exports were eligible under the GSP scheme.

After the removal of GSP benefits on expected lines, the Indian Government has decided to move ahead with the implementation of the retaliatory duties on specified goods originating in or exported from the US. The list includes several edible items like almonds in shell, apples, walnuts in shell, etc. The levy on walnuts would be 120% and the levy on apples would be 70%. Effective duty rates on these products were 100% and 50%, respectively, before the implementation of increased tariffs. Other items included in the list are diagnostic reagents, boric acids, flat-rolled products of iron, stainless steel, and other articles of iron/steel. The increase in the effective duty rate on these products is as high as 20%.

It would be interesting to see how this tariff row takes shape and what will be the consequences of it on the world economy. At present, India and the US are already at loggerheads at the World Trade Organization on various issues including some incentive schemes offered by India for the exporters. Considering the Trade War between the US and China, this adds a new element to the supply chain of which we need to be aware of. 

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Topics: India

Written by Ashutosh Nath

Ashutosh Nath leads India practice of Tradewin from his Mumbai office. For a period of over 10 years, Ashutosh has been advising clients on various Customs and Indirect Tax issues across sectors in India. Prior to Tradewin, Ashutosh was working with a Big 4 consulting firm. Ashutosh has managed hundreds of assignments which include Advisory and Compliance related to Special Economic Zone (SEZ) and Free Trade Warehousing Zone (FTWZ); Free Trade Agreements (FTA), HS Classification & Customs Valuation; Customs and Trade Health Checks & Indirect Tax Optimization; Foreign Trade Policy including duty exemption schemes and credit scrips; GST Implementation in India and Dispute resolutions at various levels in India. He is a Chartered Accountant and Graduate in Commerce from Sydenham College, Mumbai University.