Business Economics &Services Team (BEST)
Escalating Indo-US Trade War
Like the real war, the trade wars are also an interplay of assertions, strategies, moves, counter moves, double talks and what have you. There are also trappings of deceit, conceit, arm twisting etc. in this game from both sides. But the powerful between the two wins the game. But unlike in the real war, there are no bloodshed, arms, weapons etc. In effect, it is a war of wits that can be won by a combination of factors like business acumen, foresightedness and the like.
The US has fought this war with Japan, EU, China and now with India. Sometimes, the trade wars can give strange results-a win-win situation or a lose-lose situation. Most of these wars follow a predictable trend and a goal-increased market access. Let us take stock of the current dimensions of the trade war between India and the US.
1. The pharmaceutical sector. There are a number of areas ranging from patent protection, copy rights act, data protection, compulsory licensing, incremental innovation etc that have come to occupy the center stage in the US demand profile. The US Congress is putting pressure on Obama Administration to take steps against India and to keep India always in the radar for violation of trade related intellectual property rights. The latest is the forthcoming visit from the US a delegation to , assess how far India's pharmaceutical sector is complying with WTO norms. Basic to these assertions are that the US wants to have protection of intellectual property rights for a longer duration and better price for its pharma products in India. India is resisting the pressure by maintaining that whatever actions that it has taken are in compliance with the WTO rules. In a country, where there are a large number of poor people, India can ill-afford a runaway price for its medicines. The present increase in the prices of medicines has put the government in a mat, both from opposition and within the ruling coalition.
Telecom Sector: Not long ago, the US Vice President visited India. Among his top priority was to dissuade India from resorting to compulsory licensing or indigenization of the manufacturing of telecom, which in policy apparatus is called phased manufacturing process. This was mainly about certain telecom equipment. The ban on imports of these items imposed by the Indian government was on account of the possible malware and spyware that can be built into the equipment. The US could succeed in partially getting the ban relaxed. A few days back, the US business body -US India Business Council -has represented to the office of the US Trade Representative (USTR) about the violation of India on the WTO monitored International Telecom Agreement (ITA) by imposing customs duty on electronics products imported into India. They also complained that India is increasingly resorting to compulsory licensing of certain electronic items. The Indian counter was that the ITA was signed in 1997 and many electronic products have not come inot being after that cut off date. Naturally, the products which are introduced into the market after the cut off date will not be covered under the ITA, which stipulate that the imports should have only zero duty. Also, India's assertion is that the compulsory licensing is resorted only when the production of an item, be it electronics or pharma product, is only when it was absolutely required as allowed under WTO. Also, the foreign manufacturers/ importers are informed about the decision well in advance.
Double Taxation Avoidance Treaty (DTAT): The US has many complaints in this regard ranging from opaque nature of India's tax system, unpredictability of the system and on issues like retrospective tax, transfer pricing etc. Several rounds of discussions were held at both official and political levels. India' s has clear cut stand on bringing back the laundered money from tax havens. But the laws in several countries stipulate that the names of the people involved in stashing away funds abroad should be revealed only after a proper inquiry was conducted and a prosecution case is charged against them. India also is against routing money into the country through tax havens taking advantage of the tax laws in these countries. But foreign investors especially foreign institutional investors (FIIs) and the countries having liberal tax regimes are against such changes.
Financial Sector: The US wants India to liberalize further its financial sector, particularly insurance and banking. The Bill introduced in Parliament for increasing the threshold limit of the FDI in insurance is facing a lot of resistance from the left parties and also a group within the ruling party called RSS, the cultural wing of BJP. The public sector banks in India is dead against the demand of the foreign banks in India to expand their network. Presently, there is restriction on them on the number of branches which they can open. The fear of the public sector banks is that once the multinational banks are allowed to go into small towns and villages, they will be able to mop updeposits, at their own cost. far in excess what they can.
Visa Issues: India wants a liberalized visa regime from the US to enable the large talent pool to take advantage of the emerging opportunities in the US. Apart from software and medical services, professionals like advocates, nurses, technicians, architects, management consultants, financial experts etc. can get contracts - short or long - in the US. This will help India to improve its services exports to increasingly offset the deficit in the merchandize trade. But the US insist on opening up the services sector in India. That would mean that legislation governing professions like lawyers, chartered accountants, doctors, architects etc should be amended to allow foreign professionals to practice in India. A large segment of professionals across the board are against this proposition
Totalization Agreement:. A closely linked up matter is the India's plea for early conclusion of the Totalization Agreement between the two countries, the negotiations for that has been going on for a long time. This would mean that social security tax need to be paid only in one country. Now such tax is levied in both countries. The US rules stipulate that the social security tax has to be paid by any employee the moment he starts working there. But the benefits of the tax, such as unemployment or old age pension, medical expenses etc can be availed only when the employee works in the US for a minimum period of 10 years. Most of the Indian IT &ITeS employees work there for lesser duration and they forfeit their contributions. Unofficial estimates, put this figure around US dollar one billion a year. Conclusion of the Totalization Agreement will help these employees and their employers save a lot of money since they will be expected to pay tax only in one place.
Escalating Indo-US Trade War
Like the real war, the trade wars are also an interplay of assertions, strategies, moves, counter moves, double talks and what have you. There are also trappings of deceit, conceit, arm twisting etc. in this game from both sides. But the powerful between the two wins the game. But unlike in the real war, there are no bloodshed, arms, weapons etc. In effect, it is a war of wits that can be won by a combination of factors like business acumen, foresightedness and the like.
The US has fought this war with Japan, EU, China and now with India. Sometimes, the trade wars can give strange results-a win-win situation or a lose-lose situation. Most of these wars follow a predictable trend and a goal-increased market access. Let us take stock of the current dimensions of the trade war between India and the US.
1. The pharmaceutical sector. There are a number of areas ranging from patent protection, copy rights act, data protection, compulsory licensing, incremental innovation etc that have come to occupy the center stage in the US demand profile. The US Congress is putting pressure on Obama Administration to take steps against India and to keep India always in the radar for violation of trade related intellectual property rights. The latest is the forthcoming visit from the US a delegation to , assess how far India's pharmaceutical sector is complying with WTO norms. Basic to these assertions are that the US wants to have protection of intellectual property rights for a longer duration and better price for its pharma products in India. India is resisting the pressure by maintaining that whatever actions that it has taken are in compliance with the WTO rules. In a country, where there are a large number of poor people, India can ill-afford a runaway price for its medicines. The present increase in the prices of medicines has put the government in a mat, both from opposition and within the ruling coalition.
Telecom Sector: Not long ago, the US Vice President visited India. Among his top priority was to dissuade India from resorting to compulsory licensing or indigenization of the manufacturing of telecom, which in policy apparatus is called phased manufacturing process. This was mainly about certain telecom equipment. The ban on imports of these items imposed by the Indian government was on account of the possible malware and spyware that can be built into the equipment. The US could succeed in partially getting the ban relaxed. A few days back, the US business body -US India Business Council -has represented to the office of the US Trade Representative (USTR) about the violation of India on the WTO monitored International Telecom Agreement (ITA) by imposing customs duty on electronics products imported into India. They also complained that India is increasingly resorting to compulsory licensing of certain electronic items. The Indian counter was that the ITA was signed in 1997 and many electronic products have not come inot being after that cut off date. Naturally, the products which are introduced into the market after the cut off date will not be covered under the ITA, which stipulate that the imports should have only zero duty. Also, India's assertion is that the compulsory licensing is resorted only when the production of an item, be it electronics or pharma product, is only when it was absolutely required as allowed under WTO. Also, the foreign manufacturers/ importers are informed about the decision well in advance.
Double Taxation Avoidance Treaty (DTAT): The US has many complaints in this regard ranging from opaque nature of India's tax system, unpredictability of the system and on issues like retrospective tax, transfer pricing etc. Several rounds of discussions were held at both official and political levels. India' s has clear cut stand on bringing back the laundered money from tax havens. But the laws in several countries stipulate that the names of the people involved in stashing away funds abroad should be revealed only after a proper inquiry was conducted and a prosecution case is charged against them. India also is against routing money into the country through tax havens taking advantage of the tax laws in these countries. But foreign investors especially foreign institutional investors (FIIs) and the countries having liberal tax regimes are against such changes.
Financial Sector: The US wants India to liberalize further its financial sector, particularly insurance and banking. The Bill introduced in Parliament for increasing the threshold limit of the FDI in insurance is facing a lot of resistance from the left parties and also a group within the ruling party called RSS, the cultural wing of BJP. The public sector banks in India is dead against the demand of the foreign banks in India to expand their network. Presently, there is restriction on them on the number of branches which they can open. The fear of the public sector banks is that once the multinational banks are allowed to go into small towns and villages, they will be able to mop updeposits, at their own cost. far in excess what they can.
Visa Issues: India wants a liberalized visa regime from the US to enable the large talent pool to take advantage of the emerging opportunities in the US. Apart from software and medical services, professionals like advocates, nurses, technicians, architects, management consultants, financial experts etc. can get contracts - short or long - in the US. This will help India to improve its services exports to increasingly offset the deficit in the merchandize trade. But the US insist on opening up the services sector in India. That would mean that legislation governing professions like lawyers, chartered accountants, doctors, architects etc should be amended to allow foreign professionals to practice in India. A large segment of professionals across the board are against this proposition
Totalization Agreement:. A closely linked up matter is the India's plea for early conclusion of the Totalization Agreement between the two countries, the negotiations for that has been going on for a long time. This would mean that social security tax need to be paid only in one country. Now such tax is levied in both countries. The US rules stipulate that the social security tax has to be paid by any employee the moment he starts working there. But the benefits of the tax, such as unemployment or old age pension, medical expenses etc can be availed only when the employee works in the US for a minimum period of 10 years. Most of the Indian IT &ITeS employees work there for lesser duration and they forfeit their contributions. Unofficial estimates, put this figure around US dollar one billion a year. Conclusion of the Totalization Agreement will help these employees and their employers save a lot of money since they will be expected to pay tax only in one place.
