New Delhi: A bilateral trade deal is critical not just for India but also for the US as it is seen to be key to Donald Trump’s focus on boosting production and exports from America. An across-the-board duty reduction will mean that carmakers, bourbon producers or handset manufacturers will ship goods into India from the most competitive source, likely to be China or south-east Asia, instead of an American factory.
Neither Harley Davidson, a favourite with US presidents, or Tesla, run by Trump aide Elon Musk, source their vehicles from US. While Harley import its bikes from its manufacturing set-up in Thailand, Tesla, which is close to launching its cars in India, is likely to ship its electrics from Germany after authorities requested the firm not to import the vehicles from China.
Duty cuts
Companies find it beneficial to use other manufacturing bases due to locational advantages helping them save on freight or due to economies of scale. Besides, some are taking advantage of India’s existing free trade agreements to ship goods at zero duty.
For all the noise, Harley, which only makes the 440cc model in India in partnership with Hero Moto. “There is a mega set-up in Thailand that the company uses to get its bikes to India. Beyond the 440cc that it makes here, all the other bikes — including bigger ones like Pan America, Nightster, Street Glide and Fat Bob — are being imported from Thailand,” an analyst specialising in foreign trade told TOI.
“So even if India reduces the duty on imported bikes from the US to zero, Harley will still find it beneficial to get them from Thailand due to its proximity to India, which lowers the freight cost and makes shipments faster,” another analyst said.
A bilateral trade deal, for which commerce & industry minister Piyush Goyal is in Washington, could provide duty advantages to India as well as the US, and enable factories and farmers in both countries to directly export.
Govt has signalled its lower tariffs by slashing duties on imported bikes and bourbon. Although the move, which saw reduction from all sources of imports, was addressing Trump’s repeated attack on India’s “high tariffs”, it did not result in any gains for factories in the US.
Of the $2.6 million import of bourbon whiskey, only $780,000 was directly from the US, and the bulk came from other countries, some of which were bottling hubs.
While India has remained largely silent despite the high-decibel tariff tirade by Trump, it is quietly moving in to secure its trade relations with other key partners, such as the UK and the European Union, which can give them an edge over the US.
For the EU as well as the UK, automobiles are critical components of the proposed FTAs, and India has signalled its intent to cut levies. In case the trade agreement with the US drags on, there will be a distinct advantage for companies, including the likes of Tesla, to import vehicles from Germany.
Separately, the duty benefits for food products, such as almonds, under the India-Australia ECTA can be made more liberal by allowing larger quantities to be imported, which can put them on a par with their Californian rivals.
