The relationship between Narendra Modi and Donald Trump is facing its biggest test yet after the US president’s decision to raise tariffs on imported steel and aluminium started a broader fight over each other’s trade policies.
India and the US have both accused the other of breaching World Trade Organization rules. Officials in New Delhi say the new US tariffs go beyond agreed limits, while Washington is challenging export incentives offered to Indian companies.
Officials from 24 different WTO countries will meet at an informal session on Tuesday in New Delhi to discuss these and other issues. Biswajit Dhar, head of the Centre for WTO Studies in New Delhi, said: “We are coming to a position where these issues must be addressed, and the mini-ministerial meeting is the ideal place to do it.
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Mr Trump and Mr Modi formed a rapport when the US president visited New Delhi last summer. But that has not stopped Mr Trump from singling out India for what he calls unfair trade policies.
Last month he called Mr Modi a “beautiful” and “fantastic” man, but added that the US was “getting nothing” from the trading relationship between the two. He has repeatedly complained that India imposes a punitive import duty on Harley-Davidson motorcycles.
Mr Trump has since unveiled tariffs of 25 per cent on steel imports and 10 per cent on aluminium, angering many of its closest allies, including the EU, which is considering bringing a complaint to the WTO.
India is not a big exporter of either metal to the US, accounting for about $1.5bn of sales — 2 per cent of the US’s total steel and aluminium imports. But officials in Delhi were furious about the tariffs, and concerned that it might be a precursor to further action that could hit some of its more significant exports, such as pharmaceuticals.
They also argue that the exemptions granted to countries including Mexico and Canada flout the “most favoured nation” principle under which countries must not impose different tariffs on others.
“This would completely break the ‘most favoured nation’ system,” said one official. “If there was a dispute settlement hearing at the WTO, it would be decided in a minute.
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New Delhi has so far proved reluctant to bring a case to the WTO, however, with the commerce department’s most senior bureaucrat suggesting it might instead seek an exemption alongside other US allies.
India’s commerce secretary Rita Teaotia told reporters last week: “The tariffs have been imposed on security grounds and some of the key trading partners have been excluded from that.
“On the basis of India’s strategic partnership with the United States, we are certainly not a security threat to the United States, and an exemption for India on the same grounds should also be available.
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Ms Teaotia said the issue would not formally be discussed at next week’s meeting, though experts say it may be discussed on the sidelines.
In the meantime, however, Washington has launched its own WTO complaint against India, alleging that several of its export subsidy schemes flout the organization’s rules.
The six schemes are worth about $7bn, according to the US. Robert Lighthizer, the country’s trade representative, said: “These export subsidy programmes harm American workers by creating an uneven playing field on which they must compete.
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New Delhi wants more time to phase out the subsidies, but officials admit they might have to restructure or scrap some of them quickly. Nor is this the first time the US has complained at the WTO about Indian subsidy schemes.
Last year, Washington argued successfully that New Delhi broke WTO rules when a government scheme required solar developers to use a certain proportion of Indian-made supplies.
Some in India are pushing hard for New Delhi to ignore the US complaint and file its own against Mr Trump’s new tariffs. “Along with many other countries, India is a victim of the US taking actions that are clearly against WTO rules,” said Mr Dhar. “They should approach the WTO with their complaint together.
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But for now, at least, the Indian government appears reluctant to allow the dispute to escalate. Ms Teaotia said: “I believe we both have very significant interest in each others’ markets. We are friendly countries. We wish to engage with each other and certainly wish to do business with each other.”
Source: ft.com