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Updated February 14, 2020
U.S.-India Trade Relations
The United States and India view one another as important
on certain “non-essential” consumer and other goods to
strategic partners to advance common interests regionally
stem its current account deficit. The EU initiated WTO
and globally. Bilateral trade in goods and services is about
dispute settlement consultations, claiming that certain tariff
3% of U.S. world trade (Figure 1). The trading relationship
hikes by India exceed bound rates. The United States and
is more consequential for India; in 2018, the United States
several other countries have requested to join the WTO
was its second largest goods export market (16.0% share)
consultations against India. U.S. concerns over Indian
after the European Union (EU, 17.8%), and third largest
market access also include price controls on medical
goods import supplier (6.3%) after China (14.6%) and the
devices, as well as investment and other non-tariff barriers.
EU28 (10.2%). U.S.-India foreign direct investment (FDI)
India opposes the 25% steel and 10% aluminum tariffs that
is small, but growing. Defense sales also are significant in
the United States has imposed under the national-security-
bilateral trade. Civilian nuclear commerce, stalled for years
based Section 232 of the Trade Expansion Act of 1962.
over differences on liability protections, has produced
India did not receive an initial exception like some trading
major potential U.S. supply contracts.
partners, nor negotiate an alternative quota arrangement.
Figure 1. U.S. Trade and Investment with India
India repeatedly delayed applying planned retaliatory tariffs
against the United States, in hopes of resolving the issues
bilaterally. After India lost its eligibility for a U.S. trade
preference program (see below), India imposed higher
tariffs affecting about $1.4 billion of U.S. exports (2018
data), such as nuts, apples, and chemicals. The two sides are
challenging each other’s tariff measures in the WTO.
U.S. Generalized System of Preferences (GSP). Effective
June 5, 2019, President Trump terminated India’s eligibility
for GSP, a U.S. trade and development program, for failure
to provide equitable and reasonable market access. GSP
provides nonreciprocal, duty-free tariff treatment to certain
products imported from qualifying developing countries.
The President’s determination followed a U.S. investigation
into India’s market access practices based on petitions by
U.S. dairy and medical technology industries. In 2018,
India was the largest beneficiary of GSP; over one-tenth
($6.3 billion) of U.S. goods imports from India entered
duty-free under the program, such as chemicals, auto parts,
and tableware. GSP removal reinstated U.S. tariffs, which
Source: CRS analysis, Bureau of Economic Analysis (BEA) data.
range from 1% to 7% on the top 15 GSP bilateral imports.
The Trump Administration takes issue with the U.S. trade
Services. The United States and India are competitive in
deficit with India, and has criticized India for a range of
certain services industries. Barriers to U.S. firms’ market
“unfair” trading practices. Indian Prime Minister Modi’s
access include India’s limits on foreign ownership and local
first term fell short of many observers’ expectations, as
presence requirements. A key issue for India is U.S.
India did not move forward with anticipated market-
temporary visa policies, which affect Indian nationals
opening reforms, and instead increased tariffs and trade
working in the United States. India is challenging U.S. fees
restrictions. Modi’s strong electoral mandate may embolden
for worker visas in the WTO, and monitoring potential U.S.
the Indian government to press ahead with its reform
action to revise the H-1B (specialized worker) visa
agenda with greater vigor. Slowing economic growth in
program. India also continues to seek a “totalization
India raises concerns about its business environment.
agreement” to coordinate social security protection for
Selected Issues
workers who split their careers between the two countries.
Tariffs. Bilateral tensions have increased over each side’s
Agriculture. Sanitary and phytosanitary (SPS) barriers in
tariff policies. India has relatively high average tariff rates,
India limit U.S. agricultural exports. The United States
especially in agriculture. It can raise its applied rates to
questions the scientific and risk-based justifications of such
bound rates without violating its commitments under the
barriers. Each side also sees the other’s agricultural support
WTO, causing uncertainty for U.S. exporters. India’s tariff
programs as market-distorting; India’s view of its programs
hikes include raising tariffs on cell phones from 0%
from a broad food security lens complicates matters.
originally to 15% to 20%. The United States and others
Intellectual Property (IP). The two sides differ on how to
question India’s compliance with the WTO Information
balance IP protection to incentivize innovation and support
Technology Agreement (ITA). India also has raised duties
other policy goals, such as access to medicines. India
https://crsreports.congress.gov
U.S.-India Trade Relations
remained on the “Special 301” Priority Watch List in 2018,
trade issues through various dialogues. The government-to-
based on U.S. concerns, for instance, over India’s treatment
government Trade Policy Forum has not met regularly in
of patents, infringement rates, and trade secret protection.
recent years amid trade frictions. The private sector-based
“Forced” Localization. The United States continues to
CEO Forum is another avenue for bilateral engagement.
press India to address its “forced” localization practices,
Regional Integration. India recently announced that it
such as in-country data storage, domestic content, and
would not join the Regional Comprehensive Economic
domestic testing requirements—viewed by the United
Partnership (RCEP), which India negotiated with China and
States as presenting barriers to trade with India. Adding to
15 other Asia-Pacific nations. India cited concerns about
U.S. concerns are India’s new restrictive localization rules
RCEP’s fairness and balance, and reportedly also was
for certain financial data flows, which affect companies
concerned about the potential effects of opening its markets
such as Visa and MasterCard. At the same time, India has
to imports from countries such as China.
moved to ease some local sourcing rules for single-brand
Seven RCEP members (but not India) were among the 11
retailers, which would affect companies such as Apple.
remaining parties to the proposed Trans-Pacific Partnership
Investment. India aims to attract foreign investment and
(TPP). After President Trump ceased U.S. participation in
has made FDI reforms, such as raising foreign equity caps
the TPP, these 11 parties signed the new Comprehensive
for insurance and defense, and other strides to improve its
and Progressive Agreement on TPP (CPTPP), which
business environment. U.S. concerns about investment
became effective on December 30, 2018.
barriers remain nevertheless, heightened by new Indian
India has long sought to join the Asia-Pacific Economic
restrictions on how e-commerce platforms such as Amazon
Cooperation (APEC), comprised of the United States,
and Walmart-owned Flipkart conduct business. From the
China, and 19 other economies. The United States has
U.S. view, India’s weak regulatory transparency and other
issues, such as India’s IPR and localization policies
stated that it welcomes India in APEC. Some ask if India is
, add to
willing to make sufficient economic reforms to join APEC.
concerns about FDI barriers. Two-way U.S.-Indian FDI is
linked to U.S. jobs and exports in a range of sectors, yet
WTO. The United States and India often have opposing
U.S. FDI in India prompts some offshoring concerns.
stances in the WTO, whose future direction is unclear amid
Defense Trade. The two nations have signed defense
debate over institutional reforms and future negotiations.
With India’s growing integration in the global economy,
contracts worth more than $15 billion since 2008, up from
$500 million in all previous years combined. Major
some policymakers have called on India, like China, to be a
anticipated sales include 24 MH-60 Seahawk multi-role
more responsible stakeholder in the international rules-
naval helicopters ($2.6 billion) and 6 additional AH-64
based trading system. They blame India for impeding WTO
Apache attack helicopters ($930 million), among others.
progress on issues such as e-commerce customs duties and
India is eager for more technology-sharing and co-
fisheries subsidies. India previously blocked the Trade
production initiatives. The United States, meanwhile, urges
Facilitation Agreement (TFA), which ultimately entered
more reforms in India’s defense offsets policy and higher
into force in 2017, until a compromise was reached on
FDI caps in its defense sector. India’s purchase of a
treatment of certain food security programs.
multibillion-dollar deal to purchase the Russian-made
The United States and some developed countries have
S-400 air defense system may trigger U.S. sanctions on
criticized India, China, and certain other countries for self-
India under the Countering America’s Adversaries Through
designating as developing countries to claim special and
Sanctions Act (P.L. 115-44).
differential treatment under the WTO rules. India, China,
Current Negotiations and Agreements
and some of these countries have pushed back on this
criticism.
Bilateral Engagement. In 2018, President Trump stated
that India expressed interest in negotiating a free trade
Congressional Interest
agreement (FTA). Some India watchers support an FTA;
Given the potential for greater U.S.-India trade and
others question India’s willingness to open its markets.
economic ties and current trade frictions, Congress may
A U.S.-India Trade Deal?
have an interest in continuing to monitor bilateral trade
The United States and India are holding negotiations to address
relations. Issues that Congress may examine include:
bilateral trade frictions. They reportedly are preparing a limited
What are prospects for a bilateral resolution to trade
trade deal potentially to unveil during President Trump’s planned
frictions? Are multilateral or regional solutions
February 2020 visit to India. The possible deal may include partial
possible?
restoration by the United States of preferences afforded to India
Given the Trump Administration’s focus on greater
under GSP in exchange for certain market access commitments
reciprocity in U.S. trade relations, what are ways to
by India, according to press accounts. Expectations did not
strengthen U.S.-Indian trade and investment ties? Is
materialize for a deal announcement in September 2019 at the
there potential for broader trade agreement negotiations?
United Nations General Assembly’s opening session. Prior lack of
progress reportedly prompted the Administration to consider
What are the consequences of India’s opt-out from
launching an investigation into India’s trade practices under
RCEP? Will India focus more on its other trading
Section 301 of the Trade Act of 1974.
relationships, such as with the United States?
Past negotiations on a bilateral investment treaty (BIT) are
Shayerah Ilias Akhtar, Specialist in International Trade
stalled due to differences on approaches on investor
and Finance
protections. Over the years, the two sides have engaged on
K. Alan Kronstadt, Specialist in South Asian Affairs
https://crsreports.congress.gov
U.S.-India Trade Relations
IF10384
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https://crsreports.congress.gov | IF10384 · VERSION 12 · UPDATED