By Arul Louis
The US tariff war against India has been reinvigorated by President Joe Biden threatening to increase import duties on a range of imports, from prawns and Basmati rice to furniture and jewellery, in retaliation against New Delhi imposing Digital Services Tax (DS) on tech giants.
The US Trade Representative Katherine Tai announced on June 2 the plan for the 25 per cent increase in the tariffs on 26 items from India, but said that the hikes will be on hold till December.
India imposed a two per cent tax starting in April last year on earnings in the country by foreign technology and e-commerce companies like Amazon, Facebook and Google. It was opposed by the administration of former President Donald Trump, and Biden has picked up the baton.
The Trade Representative’s Office said: “India’s DST is unreasonable or discriminatory and burdens or restricts US commerce.”
The Office estimated the increased taxes on the selected imports from India will equal the taxes India assesses on the US companies under the DST.
“Estimates indicate that the value of the DST payable by US-based company groups to India will be up to approximately $55 million per year. The level of trade covered by the action takes into five account estimates of the amount of tariffs to be collected on goods of India and the estimates of the amount of taxes assessed by India.”
The other items threatened with increased duties include bamboo, window shutters, cigarette papers, pearl, copper foil and bedroom furniture.
Inaugurating the new phase of trade wars, the Biden administration also threatened to increase tariffs on imports from five other countries — the UK, Austria, Italy, Spain and Turkey over their DST.
Explaining the reason for holding the increases in abeyance for the six countries, Tai said it was to help the international negotiations on taxation.
“The US remains committed to reaching a consensus on international tax issues through the OECD (Organisation for Economic Cooperation and Development) and G20 processes. Today’s actions provide time for those negotiations to continue to make progress while maintaining the option of imposing tariffs.”
In the first phase of the negotiations, the Finance Ministers of the G7, the major western industrial powers, meeting in London agreed on Saturday to a minimum 15 per cent corporate tax rate to prevent companies using legal loopholes to avoid paying taxes on incomes in countries where they operate.
The deal will next go to next month’s meeting in Italy of the G20 — a group of 19 countries, industrialised and developing, and the European Union.
India is a member of the G20.
The latest Biden salvo opens a new front in the trade war between the two countries that started in 2018 when Trump imposed 25 per cent duties on steel and aluminium imports from India.
In 2019, Trump withdrew the special treatment for some Indian exports, mostly low-tech items and handicrafts, under the General System of Preferences (GSP) that exempted them from import duties.
New Delhi retaliated with higher tariffs on 28 US products that included walnuts and almonds.
Biden has not so far taken steps to reinstate the GSP facility for India.
(Arul Louis can be reached at arul.l@ians.in and followed @arulouis)
