Updated October 24, 2018
U.S.-India Trade Relations
The United States and India view each other as important
“demonetization” in 2016, which removed about 86% of
strategic partners to advance common interests regionally
currency by value from circulation in India to address tax
and globally. Bilateral trade in goods and services is about
evasion and corruption, and the roll-out of a nationwide
2% of U.S. world trade, but tripled in value between 2005
value-added goods and service tax in 2017 to streamline the
and 2017, reaching $126 billion (Figure 1). The trade
tax regime. The effectiveness of both reforms is debated.
relationship is more consequential for India, for whom the
United States was its second largest export market (16%
Selected Issues
share) after the European Union (EU, 17%), and third
Trade Balance. The Trump Administration, which views
largest source of imports (6%) after China (17%) and the
bilateral trade balances as an indicator of the health of a
EU (10%) in 2017. U.S.-India foreign direct investment
trading relationship, has taken issue with the U.S. trade
(FDI) is small but growing. Defense sales are significant in
deficit with India ($27 billion deficit in goods and services
bilateral trade as well. Civilian nuclear commerce, stalled
trade in 2017), and has criticized India for a range of
for years over differences on liability protections, has
“unfair” trading practices. India favors taking a broader
produced major potential U.S. supply contracts. Many
view of their trade ties beyond the trade balance. The
observers believe bilateral commercial ties could be more
consequences of trade deficits are contested.
extensive if trade and investment barriers were addressed.
Tariffs. Bilateral tensions have become heightened over
Bilateral trade frictions exist on numerous fronts, though
U.S. and Indian tariff policies. On June 1, 2018, the United
the two sides are working to resolve some issues.
States began applying 25% steel and 10% aluminum tariffs
Figure 1. U.S. Trade and Investment with India
under Section 232 of the Tariff Expansion Act of 1962. The
tariff hikes apply to all countries; India did not receive an
initial exception like some trading partners, nor negotiate an
alternative quota arrangement. India supplied 2.6% ($761
million) of U.S. steel and 2.2% ($382 million) of U.S.
aluminum in 2017. It notified the World Trade
Organization (WTO) of its plans to retaliate against the
United States with tariffs on $1.4 billion of U.S. goods
(e.g., nuts, apples, steel, and motorcycles), but has deferred
applying the tariffs until November 2, 2018, in hopes of a
bilateral resolution. India also filed a WTO complaint
against the U.S. tariff increases, and joined related
complaints lodged by other WTO members.
In September, India announced plans to raise duties on
“nonessential” goods (e.g., some precious stones, steel, and
consumer electronics) from all countries to curb imports in
order to support its depreciating rupee. This follows a
pattern of tariff hikes by India in recent years (such as on
cell phones and solar panels), as well as longstanding U.S.
concerns over India’s tariff regime. India has relatively high
Source: CRS analysis, Bureau of Economic Analysis (BEA) data.
average tariff rates, especially in agriculture, and can raise
its applied rates to bound rates without violating its WTO
India’s Economy
commitments, causing uncertainty for U.S. exporters.
India has one of the world’s fastest growing economies and
Generalized System of Preferences (GSP). In April, the
the third largest on a purchasing power parity basis. It is the
United States launched a review of India’s eligibility for
second most populous country, with a large and growing
GSP, a U.S. program that gives duty-free tariff treatment to
middle class. It also faces economic challenges, including
certain U.S. imports from eligible developing countries to
poverty, difficulty absorbing the millions of young new
support their economic development. The review concerns
workers joining the labor force, and infrastructure gaps.
India’s compliance with the GSP “market access” criterion
Rising world energy prices place pressure on India, which
and also relates to U.S. medical and dairy industry market
imports about 80% of its oil needs. Energy prices and other
access petitions. Continued GSP eligibility is a top priority
global factors have caused India’s currency to depreciate
for India, GSP’s top beneficiary. GSP accounted for 12%
against the U.S. dollar, raising concerns about inflation.
($5.6 billion) of U.S. goods imports from India in 2017.
Still, the economy is projected to grow by 7.3% in 2018, up
from 6.7% in 2017 (International Monetary Fund data), as
Services. The United States and India are competitive in
certain services industries. Barriers to U.S. firms’ market
shocks abate from domestic economic measures, e.g.,
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U.S.-India Trade Relations
access include India’s limits on foreign ownership and local
dialogues include the government-to-government Strategic
presence requirements. For India, a key issue is U.S.
and Commercial Dialogue (S&CD) and Trade Policy
temporary visa policies, which affect Indian nationals
Forum, and the private sector-based CEO Forum.
working in the United States. India is challenging U.S. fees
The United States and India do not have a bilateral free
for worker visas in the WTO, and monitoring potential U.S.
trade agreement (FTA). In October 2018, President Trump
action to revise the H-1B (professional worker) visa
stated that India expressed interest in negotiating an FTA.
program. India also continues to seek a “totalization
Some India watchers advocate for an FTA, while others
agreement” to coordinate social security protection for
question India’s willingness to open its markets. Under the
workers who split their careers between the two countries.
Obama Administration, the two sides sought a bilateral
Agriculture. Sanitary and phytosanitary (SPS) barriers in
investment treaty (BIT), but negotiations stalled.
India limit U.S. agricultural exports. The United States
questions the scientific and risk-based justifications of such
“Both sides committed to further expanding and
barriers. An ongoing issue is India’s purported compliance
balancing the trade and economic partnership…,
with a WTO decision against its ban on U.S. poultry
including by facilitating trade, improving market access,
imports and live swine due to avian influenza concerns; the
and addressing issues of interest to both sides…
WTO held that India’s measures violated WTO SPS rules.
[They] welcomed [their trade ministries’] ongoing
Each side also sees the other’s agricultural support
exchanges… and hoped for mutually acceptable
programs as market-distorting; India’s view of its programs
outcomes.”—2+2 Dialogue Joint Statement (2018)
from a food security lens complicates matters.
Regional Integration. India is party to negotiations on the
Intellectual Property (IP). The two sides differ on how to
Regional Comprehensive Economic Partnership (RCEP)
balance IP protection to incentivize innovation and support
with China and 15 other Asia-Pacific nations. Seven RCEP
other policy goals, such as access to medicines. India’s IP
members (but not India) are part of the Comprehensive and
regime remains a top concern for the United States, which
Progressive Agreement for Trans-Pacific Partnership
designated India again on its “Special 301” Priority Watch
(CPTPP), concluded by the proposed TPP’s 11 remaining
List for 2017, based on such concerns as its treatment of
parties. President Trump, who prefers bilateral negotiations,
patents, infringement rates, and protection of trade secrets.
ceased U.S. participation in TPP, and recently announced
Localization Trade Barriers. The United States continues
plans to negotiate a bilateral trade agreement with Japan.
to press India on its “forced” localization practices.
India has long sought membership in the Asia-Pacific
Initiatives to grow India’s manufacturing base and support
Economic Cooperation (APEC) forum, a grouping of the
jobs include requirements for in-country data storage and
United States, China, and 19 other economies. The United
local content for government procurement in some sectors.
States previously stated that it welcomes India in APEC,
Investment. India has made FDI reforms, such as raising
though some have questioned if India is willing to take on
foreign equity caps for insurance and defense, but barriers
economic liberalization sufficient for APEC membership.
remain in multi-brand retail and other sectors. India’s
WTO. As WTO members, the United States and India
regulatory transparency and judicial infrastructure present
negotiate multilaterally to liberalize trade, but their
challenges for U.S. investors. Two-way U.S.-Indian FDI are
differing views impeded the Doha Round. The recent Trade
associated with U.S. jobs and exports in a range of
Facilitation Agreement (TFA) to remove customs barriers
economic sectors, but U.S. direct investment in India has
(the first multilateral agreement concluded in over 20 years)
prompted some concerns about offshoring.
was initially blocked by India. The TFA entered into force
in 2017 after India reversed its position, in light of a U.S.-
Defense Trade. The two nations have signed defense
Indian understanding not to challenge specific food security
contracts worth more than $15 billion since 2008, up from
programs until a permanent WTO solution is reached—a
$500 million in all previous years combined. Major future
top priority for India. Presently, however, there is no
sales are anticipated, including the potential direct
consensus on a future work plan. There also are many
commercial sale of Apache attack helicopters, as well as
institutional questions about the WTO’s ongoing relevance.
Guardian maritime drones and additional C-17 transport
Congressional Interest
aircraft. India is eager for more technology-sharing and co-
production; recent reports indicate U.S. and Indian interest
Questions on U.S.-India trade relations may include:
in producing F-16 combat aircraft there. The United States,
How do U.S. and Indian tariff and other trade policies
meanwhile, urges more reforms in India’s defense offsets
affect their shared goal to expand bilateral trade ties?
policy and higher FDI caps in its defense sector. India’s
What are prospects for current U.S.-India trade talks to
apparent intention to spend billions of dollars to purchase
negotiate a resolution to trade frictions? Should the
the Russian-made S-400 air defense system may yet trigger
United States look to multilateral or regional options?
U.S. sanctions on India under the Countering America’s
Are bilateral FTA negotiations or a revival of BIT
Adversaries Through Sanctions Act (P.L. 115-44).
negotiations a possibility in the near term?
Current Negotiations and Agreements
Shayerah Ilias Akhtar, Specialist in International Trade
Bilateral Engagement. The United States and India
and Finance
reportedly are in “intensive” negotiations to address key
K. Alan Kronstadt, Specialist in South Asian Affairs
trade issues, such as on the U.S. steel and aluminum tariffs
and India’s GSP status. These talks may build on the
IF10384
inaugural 2+2 Dialogue in September 2018. Other bilateral
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U.S.-India Trade Relations
Disclaimer
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https://crsreports.congress.gov | IF10384 · VERSION 8 · UPDATED