U.S. tariff ruling and Iran war delays India trade deal
The Indian flag flies in front of billboards featuring images of Indian Prime Minister Narendra Modi and US President Donald Trump on February 23, 2020 in Ahmedabad, India.
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The India-US trade deal remains unsigned after months of negotiations, with the Iran war and US court ruling against tariffs creating room for new negotiations. Experts warn that delay could come at a cost.
The first tranche of the agreement was expected to be completed in mid-March, but negotiations are still ongoing, causing further delays.
“[The] “The Iran conflict is drawing diplomatic bandwidth towards energy security and geopolitical crisis management,” said Reema Bhattacharya, head of Asia research at Verisk Maplecroft, adding that this could further stall trade talks as a result.
An Indian trade delegation wrapped up its visit to the US on Thursday, but no final statement was made from the talks.
“Both sides are working towards a balanced, mutually beneficial and forward-looking trade agreement, taking into account each other’s concerns and priorities,” India’s Ministry of External Affairs spokesman said in a statement the same day. he said.
Experts say the delay in finalizing the deal could be costly for India as the US administration is likely to complete investigations under Section 301 of the Trade Act of 1974 in June.
In March, the U.S. administration launched trade investigations into China, India, the European Union and more than a dozen other economies in an effort to replace President Donald Trump’s reciprocal tariffs, which were ruled illegal by the Supreme Court on Feb. 20.
“Completing the agreement is critical” [between India and the U.S.] “It will be signed by the end of May,” Mark Linscott, former deputy US trade representative and senior advisor to the US-India Strategic Partnership Forum, told CNBC via email.
He said India could face the risk of higher tariffs than agreed in February if it did not sign the deal before the Section 301 investigation was concluded.
Room for new bargains
In August last year, the US slapped India with one of its highest tariffs of 50%. A. Part of this tax was punitive and aimed at preventing India from importing oil from Russia.
In early February, the US cut those tariffs to 18% in exchange for New Delhi cutting tariffs on US goods to zero, replacing Russian oil with supplies from the US and Venezuela, and buying $500 billion worth of American goods.
Both sides described the deal as successful and were willing to sign an agreement by mid-March for at least the first tranche of the deal. But a few weeks later, the US Supreme Court struck down Trump’s tariffs as “unlawful” and the administration subsequently imposed a 10% tariff on all trading partners.
India will pay a higher rate than other countries if it accepts the terms of the deal agreed with Washington. I’m talking on the sidelines India’s trade negotiators are bargaining to get preferential access to US markets, Indian Commerce Minister Piyush Goyal said at the India-Korea Business Forum on Monday.
India does not have unlimited room for maneuver, Harsh Pant, vice president of research and foreign policy at the New Delhi-based think tank Observer Research Foundation, told CNBC. “A tougher negotiating stance might work,” he said, but prolonged delay increases the risk of losing strategic gain.
The official added that India needs to ensure first mover advantage before Section 301 investigations are concluded.
Meanwhile, the United States is pressuring India to buy more American energy as New Delhi struggles to secure energy supplies amid disruption caused by conflict in the Middle East.
For India, energy partnership with the US has limited benefits. High freight costs, incompatible refinery infrastructure and longer delivery times are among the key obstacles to greater reliance on the United States for energy supplies.
On the other hand, New Delhi’s dependence on Russian crude oil increased significantly in March, reaching almost 50% of its oil imports.
“I don’t see the return of the 25 percent penalty tariff on Russian oil purchases,” Linscott said, but added that “more attention should be paid to signing the trade deal.”
He said the only win-win for both the US and India would be the signing of the interim agreement soon.
