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Legal Dimensions of India-USA International Trade Relations

The relations between India and the USA in the sphere of international trade have undergone numerous transformations, particularly in the post-Cold War era. The overarching legal frameworks, bilateral agreements, and occasional disputes that characterize this relationship have roots in their distinct histories, economic priorities, and global positions.

This paper delves deep into the legal perspective of this bilateral relationship, Trade related aspects, exploring the foundational agreements, points of contention, and the future trajectories.[1] With India's ascent as a global economic power and the USA's continued influence in global affairs, understanding the nuances of this trade relationship is crucial for us.

Introduction:
International trade relations between nations aren't just about the exchange of goods and services. They are underpinned by complex legal frameworks that encompass a wide range of issues including tariffs, intellectual property, dispute resolution, and even environmental standards.

The India-USA trade relationship stands as a testament to this complexity. From the nascent days of India's independence when the focus was on aid and the Cold War geopolitics to the current status as strategic trade partners, the legal perspectives have continuously evolved.

This journey has witnessed the establishment of numerous trade agreements, seen deliberations at platforms like the WTO, and sometimes even led to major trade disputes. Delving into these aspects provides not only a historical context but also insights into the challenges and opportunities that lie ahead.

International trade relations, often visualized through the lens of ships docking and goods being exchanged, go much deeper than this superficial visualization. At their core, they rest on intricate networks of legal agreements, treaties, and policies that not only facilitate trade but also shape the very nature of diplomatic relationships between nations. [2]

This legal fabric becomes all the more intriguing and complex when examined between two nations that have historically stood on different ideological platforms, yet have found common ground in the contemporary global order. The trade relationship between India and the USA is a quintessential example of this narrative.

India, post its independence in 1947, embarked on a journey as a newly born nation with socialist ideals at its core, steering clear of the bipolar power politics of the Cold War era through its non-aligned movement. The USA, on the other hand, stood as a beacon of capitalism, leading one pole of the Cold War dichotomy. These contrasting ideological postures did not promise a robust trade relationship, yet the geopolitical and economic imperatives of the times dictated otherwise.[3]

The transformation in the dynamics between India and the USA is especially pronounced post the Cold War era. As the world moved towards economic globalization, India's tryst with liberalization in the early 90s paved the way for a renewed interest in fostering stronger trade ties with global economic giants, particularly the USA. The U.S., witnessing the rise of India as a major economic and strategic partner in Asia, responded in kind. [4]

However, even as economic partnerships blossomed, they were not devoid of legal intricacies. The realm of international trade isn't just about economic exchanges but is heavily influenced by legal frameworks. These frameworks encompass a gamut of issues, ranging from tariffs, intellectual property, and environmental standards to even labor rights.

The legal perspectives have continuously evolved, dictated by both the global economic order and the specific interests of India and the USA. [5]From the inception of major trade agreements to deliberations at global platforms like the WTO, and from cooperation in areas of mutual interest to disputes in contentious domains, the legal tapestry of this relationship is rich and varied.[6]

Given the overarching importance of trade in shaping not just economic but also diplomatic ties in today's globalized world, understanding the India-USA trade relationship from a legal viewpoint is of paramount importance. Through this paper, we embark on a journey to dissect the legal nuances, tracing the historical roots, exploring the current frameworks, and postulating on the future trajectories. Such an understanding is not just essential for policymakers and legal practitioners, but it also offers invaluable insights for academicians, researchers, and students of international trade and diplomacy.[7]

Literature Review and Method:
Research on India-USA trade relations is abundant. Early works have been dominated by the Cold War geopolitics and the non-aligned movement. In the wake of economic liberalization, scholarly attention shifted towards India's economic diplomacy and its efforts to secure a favorable place in the global economic order. Various methods, including historical analysis, qualitative case studies, and quantitative data analysis, were employed.

Prominent agreements, like the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO), have garnered significant scholarly attention. Furthermore, specialized agreements such as those on intellectual property rights (TRIPS) and specific bilateral agreements like the Bilateral Investment Treaty (BIT) have also been critically analyzed.[8]

In this we will also discuss about the Indo-us Trade related general aspects:

Trade and investment ties are a key aspect of U.S.-India relations. Market access and other trade barriers with India are longstanding U.S. trade policy concerns. Some business groups and analysts see potential for the United States and India to enhance trade ties and engage on global and regional trade issues, if they can address bilateral trade barriers. During the Trump Administration, bilateral tensions grew over tariffs and other policies.

A trade deal to address some market access issues reportedly neared conclusion in 2020, but did not materialize. During the Biden Administration, the two nations have agreed to resolve certain bilateral trade issues and explore ways to expand trade ties. They revived their bilateral Trade Policy Forum (TPF)-the 2021 TPF ministerial was the first held in four years.

India also is a part of the Indo-Pacific Economic Framework for Prosperity (IPEF), an ongoing U.S.-led trade and economic initiative in the region. Bilateral frictions remain, including over tariffs, U.S. termination of India's eligibility for the U.S. Generalized System of Preferences (GSP), and sometimes diverging U.S. and Indian views in the World Trade Organization (WTO). The 118th Congress may oversee U.S.-India trade relations and seek to shape U.S. trade policy on India.

India's Economy

India's economy was the world's fifth-largest in 2022 (nominal gross domestic product, GDP). It is projected to grow by 6.1% in 2023. India is touting its 2023 presidency of the G20 as a reflection of its economic rise. Services, especially information technology (IT), are a key part of the economy.

Agriculture is the top jobs provider, but its share of India's GDP is declining. India's economy has a sizeable middle class, but faces challenges regarding unemployment, poverty, and infrastructure. Prime Minister Narendra Modi's government has enacted some market-opening reforms and sought to attract foreign direct investment (FDI), including aiming to position India as an alternative for foreign firms seeking to diversify supply chains beyond China.[9]

Yet under Modi, India has adopted trade-restrictive measures (e.g., tariff hikes) to promote "self-reliance" and boost domestic manufacturing´┐Żleading to questions about the direction of India's economic reform. In early 2023, a financial research firm accused Indian conglomerate Adani Group of decades of accounting fraud, which it denies. The scandal may affect India's global standing; some observers see Adani Group as closely linked to Modi.[10]

U.S. Trade and Investment with India

Bilateral trade ties are limited, but have generally grown in the past decade . They are a small share of U.S. trade and more consequential for India. For example, by country, for goods exports, India was the United States' 10th -largest market (2.3% share), and the United States was India's largest market (a share of nearly one-fifth). In 2022, top U.S. goods exports to India included oil and gas, miscellaneous manufactured commodities, coal and petroleum gases, basic chemicals, waste and scrap, and aerospace products and parts.

Top U.S. goods imports from India included miscellaneous manufactured commodities, pharmaceuticals and medicines, apparel, basic chemicals, textile furnishings, and petroleum and coal products. For services, travel was the top U.S. export to India, and various business services were the top U.S. import from India.[11] Defense sales also are significant in bilateral trade. A range of U.S. firms operate in India, across sectors. FDI from India in the United States is concentrated in the IT services, software, business services, pharmaceuticals, and industrial equipment sectors.

Select U.S.-India Trade Issues Tariffs

The United States has longstanding concerns over India's tariff rates, deeming them the highest of any major economy. India can raise its applied rates to bound rates without violating WTO commitments, causing uncertainty for U.S. exporters. India opposes U.S. "Section 232" tariffs on steel and aluminum (an additional 25% and 10%, respectively), initially applied in 2018.

After losing its GSP eligibility (see below), India applied retaliatory tariffs of an additional 10% to 25% affecting about $1.3 billion of U.S. exports (2022 data), including nuts, apples, chemicals, and steel. The two sides have challenged these tariffs in the WTO. The United States rejected 2022 WTO dispute panel reports that held that its Section 232 measures violated WTO rules.

Previously, the United States reached less restrictive arrangements on steel and aluminum with the European Union (EU) and some other trading partners, but not India. [12]Digital Trade. In 2021, the two nations reached a "political agreement" on treatment of India's digital services tax (DST), viewed by the U.S. government as discriminatory against U.S. firms under "Section 301."

In exchange for India's commitment to transition from its DST to the OECD/G20 global tax framework concluded in 2021, [13]the United States terminated Section 301 tariffs against India (tariffs already suspended by the United States during the global tax talks). [14]In the WTO, India initially opposed extending a moratorium on e-commerce duties, voicing concerns about developing country impacts; at the June 2022 ministerial, WTO members ultimately decided to extend the moratorium and intensify e-commerce discussions. Per the United States, the WTO decision will reduce trade costs, expand opportunities for small and medium businesses, and support supply chain resilience across sectors that rely on information flows. Other related issues of U.S. concern include India's data localization rules and their impacts on cross-border data flows.

GSP. In 2019, the United States removed India from GSP, for failure to meet market access eligibility criteria. India, which seeks reinstatement in GSP, was the largest beneficiary of GSP's duty-free treatment for qualifying goods (e.g., basic chemicals, motor vehicle parts). At the January 2023 TPF, the United States stated reinstatement "could be considered, as warranted, in relation to the eligibility criteria" that Congress may determine in considering whether to renew GSP, which expired in 2020.[15]

Services. The two nations are competitive in some services industries, including IT and professional and business services. Barriers to U.S. firms' market access include India's limits on foreign ownership and local presence requirements. A key issue for India is U.S. temporary visa policies, which affect Indian nationals working in the United States. India continues to seek a "totalization agreement" to coordinate social security protection for workers who split their careers between the two countries.

Agriculture. U.S. bilateral concerns include sanitary and phytosanitary (SPS) barriers in India that may limit U.S. agricultural exports. The United States questions the scientific and risk-based justifications of such barriers. Further, each sees the other's agricultural support programs as market-distorting; India's view of its programs from a broad, food-security lens complicates matters.

In 2022, the two nations made some market-opening commitments (e.g., for Indian mango exports, U.S. pork exports). In February 2023, India announced plans to implement a 70% cut to tariffs for U.S. pecan exports; the United States attributed India's move to TPF progress. Agricultural market access remains a bilateral trade issue.

Intellectual Property Rights (IPR). The nations differ on how to protect IPR to support innovation and other goals (e.g., access to medicines). In 2022, India remained on the U.S. "Special 301" Priority Watch List, with India's patent treatment, especially for agriculture, biotechnology, and pharmaceutical products; IP theft rates; and trade secret protection among U.S. concerns over India's IPR regime.

Investment. India has made some FDI reforms (e.g., raising foreign equity caps for insurance and streamlining FDI approvals). U.S. concerns about India's investment climate persist, including regarding India's data localization, tariff, SPS, and IPR policies and regulatory transparency.[16]

Supply Chains. India's potential expanded role in supporting secure supply chains for critical sectors has come to the fore in light of supply chain vulnerabilities exposed by COVID-19 and U.S.-China trade frictions. The United States and India aim to cooperate on supply chain resiliency (e.g., in IPEF) and, in particular, semiconductor supply chains. India also seeks to partner with the United States to develop a secure pharmaceutical base; India is major manufacturer and global supplier of generic drugs.

Defense Trade. The two nations have signed defense contracts worth more than $20 billion since 2008. India is eager for more technology-sharing and co-production initiatives, while the United States urges more reforms in India's defense offsets policy and higher FDI caps in its defense sector.[17]

Bilateral Engagement. The TPF's revival may be a key way for the two nations to enhance bilateral trade ties, but an open question is whether they can address specific issues. Some stakeholders have called for the partners to revisit past bilateral efforts to pursue an investment treaty or pursue broader trade liberalization.

The United States has emphasized bilateral cooperation in other areas as well. In January 2023, the two nations formally launched a bilateral initiative on Critical and Emerging Technology (iCET) to enhance cooperation on defense production, quantum computing, semiconductor supply chains, space, and other high-tech fields.

Regional Trade. The United States and India view themselves to be key Indo-Pacific partners, including to enhance competitiveness and counter China's economic influence. India is among the 14 countries in the four-pillar IPEF, the Biden Administration's first major trade and economic initiative in the region. Notably, India was the only country to opt out of IPEF's trade pillar, questioning its prospective commitments on areas such as environment and labor. [18]

The scope and effectiveness of the trade pillar, which currently excludes tariff reduction, also is of broader policy debate among some stakeholders. India has joined IPEF's other pillars (supply chains, clean energy, infrastructure and decarbonization, and tax and anticorruption). IPEF outcomes may be forthcoming in 2024.[19]

WTO. The two nations engage in WTO negotiations and use the WTO to enforce trade rules and settle disputes. India's growing integration in the global economy has prompted some U.S. policymakers to call on India, like China, to be a more responsible stakeholder in the rulesbased global trading system. They blame India for impeding progress on certain WTO issues (e.g., on ecommerce customs duties moratorium and fisheries subsidies disciplines).

Ongoing issues include whether to expand an IPR waiver for COVID-19 vaccines, which WTO members adopted in 2022, to apply to diagnostics and treatments. India, an early proponent of a COVID-19 IPR waiver, supports an expansion. [20]The United States, which supported the original waiver, has not taken a public position on the expansion. Congressional views are mixed.

Scope:
The research aims to understand the legal foundations underpinning the trade relationship. It examines:
  • Foundational bilateral agreements and their implications.
  • Points of contention ´┐Ż from intellectual property rights to agricultural subsidies.
  • The role and implications of multilateral agreements.
  • The trajectory of service trade and its legal ramifications.
  • The Trade Related aspects of both countries.


Limitation:
This study focuses primarily on the legal aspects, and while economic and political implications are considered, they are not the primary focus. Historical developments after 2021 aren't accounted for, and areas like defense and strategic partnership, although intertwined with trade, aren't extensively covered.

Hypothesis:
The legal trajectory of India-USA trade relations reflects both nations' evolving positions in global geopolitics and economics. While disputes exist, the overarching trajectory points towards deeper integration and cooperation, driven by mutual economic and strategic interests.

U.S.-India trade relations have exhibited a complex trajectory characterized by both synergy and contention. The evolution of these relations hinges upon a blend of historical precedents, changing global economic scenarios, and the internal economic trajectories of both nations. While there has been a clear intent from both sides to augment trade and investment ties, longstanding concerns, especially regarding market access and tariff barriers, have persistently posed challenges.[21]

During the Trump Administration, the approach to bilateral relations was marked by heightened tensions and disagreements on tariffs, which culminated in the absence of a concrete trade deal. However, the Biden Administration signals a revival of collaborative spirit, evident through the reinvigoration of platforms like the Trade Policy Forum (TPF). Yet, even with these positive moves, bilateral frictions on tariffs, U.S. policy decisions, like the termination of India's GSP eligibility, and differing perspectives in global forums like the WTO remain unresolved.

India's internal economic trajectory, marked by its emphasis on "self-reliance" under Prime Minister Modi's leadership, juxtaposed with moves to attract foreign direct investment, presents an interesting paradox. While the nation seeks to assert its position as an alternative hub for global supply chains, the adoption of certain trade-restrictive measures raises questions on the broader direction of India's economic reforms.

Furthermore, specific trade issues such as digital trade, tariffs, intellectual property rights, and agriculture present additional layers of complexity in the bilateral relationship. [22]The potential of India in fortifying global supply chains, especially in the backdrop of the COVID-19 pandemic and U.S.-China trade tensions, underscores the significance of a strengthened U.S.-India partnership. Yet, the realization of this potential is contingent upon addressing bilateral trade issues and fostering an environment conducive to mutual growth.[23]

In the regional context, while India and the U.S. share mutual interests in the Indo-Pacific, the dynamics of their engagements, such as India's selective participation in the IPEF, elucidates a nuanced approach to collaboration. Additionally, their interactions within the WTO framework reflect the balance they attempt to strike between national priorities and global responsibilities.

In summary, while U.S.-India trade relations have a vast potential anchored in shared democratic values and economic synergies, the path to a fully realized partnership demands concerted efforts, mutual understanding, and strategic compromise on both sides.[24]

Research Gap:
Despite extensive research, there's limited understanding of how evolving domestic legal frameworks (in both countries) impact bilateral trade relations. Furthermore, the implications of emerging areas like digital trade and e-commerce, in light of recent data protection and privacy laws, remain underexplored.

The intricate dynamics of international trade relations are perpetually evolving, driven not just by market forces and global geopolitics, but also significantly by domestic legal frameworks that set the parameters for trade and commerce. The bilateral trade relationship between India and the U.S., two of the world's major economies, serves as a prime example of this multi-dimensional interplay. [25]

Yet, despite copious amounts of research dedicated to understanding this bilateral relationship, there remain significant gaps, particularly concerning the impact of internal legal trajectories on trade and the emerging domains of digital trade and e-commerce and what are the legal treaties that will impact them.

Conclusion:
The trade relationship between the U.S. and India is complex and has a lot of history behind it. Even though trade and investment are crucial parts of their relationship, there are still many challenges they face. Both countries recognize the great potential they have to grow their trade relations. However, they have faced issues over things like taxes on imports (tariffs), online trade, and rules about making and selling products.

There have been ups and downs in their trade relationship, like disagreements during the time of President Trump and more positive steps during President Biden's time. India's economy is big and growing, but it has its own set of challenges. They have made some changes to attract more foreign business, especially with the ongoing U.S.-China trade issues and the global health crisis caused by COVID-19.

The trade isn't just about goods like oil or medicine. Other areas, such as services, defense, and investments, are also essential. Both countries are working together to address challenges, and they have set up forums to discuss these issues.

Another essential point is the bigger picture in the Asia-Pacific region. Both the U.S. and India want to have a strong presence there, especially given China's influence. India is taking part in regional efforts led by the U.S. to boost trade and cooperation.[26]

Finally, both the U.S. and India play essential roles in worldwide groups that set trade rules, like the WTO. Sometimes they agree, sometimes they don't, reflecting their unique priorities.[27]

In short, the trade relationship between the U.S. and India has its challenges, but it's crucial for both countries. As they move forward, their decisions will impact global trade in big ways.

End-Notes:
  1. U.S. Department of State, Bureau of South and Central Asian Affairs, 'U.S. Relations With India' (February 2021) - https://sgp.fas.org/crs/row/R47597.pdf
  2. U.S. Trade Representative, '2021 National Trade Estimate Report on Foreign Trade Barriers' (March 2021) - https://ustr.gov/sites/default/files/files/reports/2021/2021NTE.pdf
  3. The Wall Street Journal, 'U.S., India Trade Relations Strain Under Tariff Dispute' (June 2019) - https://www.wsj.com/articles/top-u-s-indian-diplomats-try-to-work-past-tariff-dispute-11561572796
  4. The Hindu, 'India, U.S. agree to revitalize ties' (April 2021) - https://www.thehindu.com/opinion/editorial/strategic-high-the-hindu-editorial-on-india-us-ties-and-strategic-cooperation/article67016050.ece
  5. Financial Times, 'Adani Group faces accusations of accounting fraud' (February 2023) - https://www.ft.com/content/84b09eb2-caca-49a3-802c-0dd760310c91
  6. The Wall Street Journal, 'U.S., India Trade Relations Strain Under Tariff Dispute' (June 2019) - https://www.wsj.com/articles/top-u-s-indian-diplomats-try-to-work-past-tariff-dispute-11561572796
  7. U.S. Department of State, Bureau of South and Central Asian Affairs, 'U.S. Relations With India' (February 2021) - https://sgp.fas.org/crs/row/R47597.pdf
  8. U.S. Trade Representative, '2021 National Trade Estimate Report on Foreign Trade Barriers' (March 2021) - https://ustr.gov/sites/default/files/files/reports/2021/2021NTE.pdf
  9. The Hindu, 'India, U.S. agree to revitalize ties' (April 2021) - https://www.thehindu.com/opinion/editorial/strategic-high-the-hindu-editorial-on-india-us-ties-and-strategic-cooperation/article67016050.ece
  10. The Wall Street Journal, 'U.S., India Trade Relations Strain Under Tariff Dispute' (June 2019) - https://www.wsj.com/articles/top-u-s-indian-diplomats-try-to-work-past-tariff-dispute-11561572796
  11. World Bank, 'World Development Indicators Database' (2022) - https://databank.worldbank.org/source/world-development-indicators
  12. The Hindu, 'India, U.S. agree to revitalize ties' (April 2021) - https://www.thehindu.com/opinion/editorial/strategic-high-the-hindu-editorial-on-india-us-ties-and-strategic-cooperation/article67016050.ece
  13. The Wall Street Journal, 'U.S., India Trade Relations Strain Under Tariff Dispute' (June 2019) - https://www.wsj.com/articles/top-u-s-indian-diplomats-try-to-work-past-tariff-dispute-11561572796
  14. Office of the United States Trade Representative, 'USTR Announces GSP Enforcement Actions' (June 2019) - https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/october/ustr-announces-gsp-enforcement
  15. World Bank, 'World Development Indicators Database' (2022) - https://databank.worldbank.org/source/world-development-indicators
  16. Office of the United States Trade Representative, 'USTR Announces GSP Enforcement Actions' (June 2019) - https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/october/ustr-announces-gsp-enforcement
  17. U.S. Trade Representative, 'Special 301 Report' (2022) - https://ustr.gov/sites/default/files/IssueAreas/IP
  18. The Wall Street Journal, 'U.S., India Trade Relations Strain Under Tariff Dispute' (June 2019) - https://www.wsj.com/articles/top-u-s-indian-diplomats-try-to-work-past-tariff-dispute-11561572796
  19. US Department of Commerce, 'U.S. Exports and Imports Report' (2022) - https://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf
  20. U.S. Department of Agriculture, Foreign Agricultural Service, 'Sanitary and Phytosanitary Report' (2022) - https://www.fas.usda.gov/sites/default/files/2023-05/2022-Yearbook_0.pdf
  21. Reuters, 'India's Modi pushes for reforms to woo investment' (July 2021) - https://www.reuters.com/article/us-india-economy-gdp-idINKBN1Y31N1
  22. US Department of State, 'Indo-Pacific Economic Framework for Prosperity (IPEF)' (2021) - https://ustr.gov/trade-agreements/agreements-under-negotiation/indo-pacific-economic-framework-prosperity-ipef
  23. U.S. Trade Representative, 'Special 301 Report on IPR' (2022) - https://ustr.gov/sites/default/files/IssueAreas/IP/2022%20Special%20301%20Report.pdf
  24. U.S. Department of State, Bureau of South and Central Asian Affairs, 'U.S. Relations With India' (February 2021) - https://sgp.fas.org/crs/row/R47597.pdf
  25. US Department of State, 'Indo-Pacific Economic Framework for Prosperity (IPEF)' (2021) - https://ustr.gov/trade-agreements/agreements-under-negotiation/indo-pacific-economic-framework-prosperity-ipef

Written By: Ankita Yadav, Gautam Buddha University, Greater Noida

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