Every day one hears about completion of the Indo-USA trade agreement at any time and particularly before the election of a new president in November 2020 elections. Is it so simple that the trade agreement does not have any shape to help each other? Both the countries have signed so many similar agreements with others must be looking for an agreement to help themselves with the best benefits. Let us study what does the U.S.A., expects from the forthcoming free trade agreement and that too from India which continues to be one of the best exporting countries with a substantial trade surplus. Right now, U.S.A. exports less and imports more. Let the following web of the U.S.A., the government lead us in our discussion. Interestingly, the U.S.A., is one of the largest exporters of arms and ammunitions, particularly, among high tech areas to meet India’s urgent needs.

https://www.trade.gov/free-trade-agreement-overview

My whole discussion will be from this U.S.A., government website to have authenticity and a history which has shown good business results for those countries who entered FTA with the U.S.A., and are among global leaders. Some of the successful examples include Japan, South Korea, Vietnam,  etc.

Key Benefits of Free Trade Agreements                                                                             

 U.S. FTAs typically address a wide variety of government activity that affect their businessmen as under: (In their views)

  • Reduction or elimination of tariffs on qualified. For example, a country that normally charges a tariff of 12% of the value of the incoming product will eliminate that tariff for products that originate (as defined in the FTA) in the United States. This makes you more competitive in the market.
  • Intellectual Property Protection: protection and enforcement of American-owned intellectual property rights in the FTA partner country.
  • Product Standards:  the ability for U.S. exporters to participate in the development of product standards in the FTA partner country.
  • Selling to the government:  the ability for a U.S. company to bid on certain government procurements in the FTA partner country.
  • Service companies: the ability for U.S. service suppliers to supply their services in the FTA partner country.
  • Fair treatment for U.S. investors providing they be treated as favorably as the FTA partner country treats its own investors and their investments or investors and investments from any third country.

Let us look at the complete list of countries that entered FTA with the U.S.A.

  • Australia
  • Bahrain
  • Chile
  • CAFA-DR (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras & Nicaragua)
  • Colombia
  • Israel
  • Jordan
  • Korea
  • Morocco
  • NAFTA (Canada & Mexico)
  • Oman
  • Pana
  • Peru
  • Singapore
  • USMCA (Canada Mexico)

Let us understand “What are free trade agreements”?

Quoting from the web site simplifies the definition.

“A Free trade Agreement (FTA) is an agreement between two or more countries where the countries agree on certain obligations that affect trade in goods and services, and protections for investors and intellectual property rights, among other topics. For the United States, the main goal of trade agreements is to reduce barriers to U.S. exports, protect U.S. interests competing abroad, and enhance the rule of law in the FTA partner country or countries.”

In the eyes of the U.S.A., free trade agreements (FTA) between the United States and select trading partners provide low or duty-free access, strong intellectual property protection, and greater U.S. exporter input into FTA country product standards.

What does the U.S.A., consider as worthy of commercial value in trading?

Let us narrate their assumption about our market.

Market Opportunities

Overview of best prospect sectors, major infrastructure projects, significant government procurements, and business opportunities.

The following sectors provide growth opportunities for U.S. companies to the Indian market:

  • Energy
  • Healthcare & Medical Equipment
  • Defense
  • Civil Aviation
  • Environmental Technology
  • Information & Communications Technology
  • Safety & Security
  • Mineral & Mineral Processing Equipment
  • Agriculture
  • Education Services
  • Travel & Tourism

What makes FTA an agreeable commercial proportion for American Government with India?

  • Bilateral U.S.-India trade expanded to $142.1 billion in goods and services in 2018 against a backdrop of Indian GDP growth of 7.1 percent and declining overall levels of global trade volumes.
  • The United States remained one of India’s largest trading partners, with exports of U.S. goods and services to India reaching $58.9 billion, and imports from India hitting $83.2 billion.
  • The United States also remained India’s top export market, while India was the 12th biggest export market for U.S. goods in 2018.  Despite gains in our bilateral trade, there exists the enormous potential to further increase our trade.
  • India’s $24.2 billion trade surplus with the United States is its largest with any country.

For those who claim to be American observers in relation to investments from India, the following commercial details will gladden their hearts. Even during the worst political equation with the U.S.A., India continued to believe in commerce with them as a holy cow. Now the facts will explain themselves.

  1. India-sourced Foreign Direct Investment into the United States was valued at $13.1 billion in 2017, an increase of $1 billion from the previous year.  India-sourced FDI supported approximately 66,800 U.S. jobs in 2016.
  2. India’s direct investment in the United States is led by professional, scientific, and technology services, but also includes depository institutions and manufacturing.  U.S.-sourced FDI into India was valued at $44.5 billion in 2017, but much U.S. investment enters the country from third-country destinations.
  3. S. companies directly employ approximately 1.3 million Indians and support an estimated six million jobs across the country.
  4. S. companies are the largest foreign investors and employers in India.  Most major U.S. companies are active in the market, including fast-growing U.S. franchisors that are responding to changing consumer tastes and an expanding consumer class, particularly in urban areas. 

How did India corner its attention on the economic scene which has catapulted it’s most after sought position among the leading economies of the world? Did its economic reforms, structural changes in its economic policies, or willingness of its people to accept changes as a way of life to achieve a better living?

Let me confirm my views with the actual position as viewed by the American government which has been demanding adequate economic reforms so that those industries leaving China would consider India as one of those substitutes who would meet the requirements of American companies.

India’s economy performed well in 2018, with GDP growing at over seven percent coupled with a stable rupee and steady, relatively low inflation.  India remains a difficult market for doing business, despite a 23-place jump in the World Bank’s 2019 Ease of Doing Business Index ranking 77th out of 190 countries surveyed.

 The primary gains resulted from improvements in granting construction permits and trading across borders.

 However, large trade irritants remain for U.S. industry in the healthcare, information and communication technology (ICT), aviation, agriculture, and financial services sectors.  Steel excess capacity and ongoing antidumping and countervailing duties (AD/CVD) cases also present challenges.

Not many of us recollect that when the Pharmacy companies from the Western world with huge profit margin refused to induct huge medicine in underdeveloped countries, it was India with some of the best Pharma companies who came forward and produced Billions of US $ worth of medicines for regular supply. Mr. Bill Gates, one of the noblest human beings who spends most of his huge earnings for the poor people towards improving their health, considers India as a great friend and invariably involves Indian companies to serve the world.

What about defense where the U.S.A. has emerged as one of the top suppliers of defense materials to India to safeguard its territories?  Huge military supplies for immediate Indian requirements have also contributed to better relationships between India and U.S.A.

Let us look at the following information as inscribed in the U.S. Government web?

The United States designated India as a “Major Defense Partner” in June 2016, paving the way for greater trade and technology sharing on par with that of the United States’ closest allies and partners.  On July 30, 2018, the U.S. Department of Commerce announced that India would be moved to Tier 1 of the Department’s Strategic Trade Authorization (STA) license exception, expanding the scope of military exports that can be made available to India without individual licenses. Factually, the loss of defense production in the U.S.A., resulting in loss of jobs was made up of increasing military purchases.

Indian companies in certain industrial sectors, such as information technology, telecommunications, pharmaceuticals, textiles, and engineering are globally recognized for their innovation and competitiveness.  U.S. companies operating in India emphasize that success requires a long-term planning horizon and a state-by-state strategy to adapt to the complexity and diversity of India’s markets.

Indians have taken it granted about extensive banking network in India. Whenever any country wants to establish Free Trade Agreement that is supposed to open the economies of both the countries with least irritants, the U.S.A., with the best banking network and distinguished service to the banking world, would have definitely considered the following facts about Indian banking before pursuing FTA with India.

 In India, there are 46 foreign banks, 17 nationalized banks, State Bank of India (with its merged associate banks), 25 private sector banks, 10 small finance banks and 7 payment banks in addition to a large number of co-operative and regional rural banks. Large Indian banks and most Indian financial institutions are in the public sector.

 Though public-sector banks currently dominate the banking industry, numerous private and foreign banks exist. Several public-sector banks are being restructured, and in some cases, the government either has already reduced or is in the process of reducing its ownership.

 Private banks are capturing the market share from state-owned banks, both in terms of deposits and advances.  In terms of the market share, public and private sector banks held 70 percent and 26 percent of deposits and 65 percent and 30 percent of loans respectively.

India with a huge banking business with the U.S.A., naturally expects the Indian market to open up further and meet its global expectations.

America with its most advanced banking systems, manpower, and reliable past two decades of banking, is the best opportunity to happen if India signs FTA with the U.S.A. India with its best manpower will also attract maximum investments in banking and open up avenues for India to strengthen its claim as the intellectual capital of the world. Every year, more than 200,000 students study in U.S.A. universities, have maximum exchange programs with them and most of the Indian private/public sector top management have been continuously upgraded with their knowledge provided by American universities, systems, and procedures.

What are the payment systems which exist between India and U.S.A?

Import financing procedures adhere to Western business practices. The safest method of receiving payments is through an irrevocable letter of credit (L/C). The L/C should be payable in favor of the supplier against presentation of shipping documents through the importer’s bank. Importers open L/Cs valid for three to six months depending upon the terms of the agreement. Typically, L/Cs are opened for a specified period to cover production and shipping. They are normally paid within seven working days of the receipt of goods. There are several lines of credit available to U.S companies. Similar is the case for Indian companies.

Why FTA between the two countries would help India? Does it also get special attraction from American banks who have been great supporters of India for the past 70 years?

Commercial banks continue to be the main source of short-term finance and working capital requirements of Indian firms. Indian companies also raise funds by issuing commercial paper and debentures, from inter-corporate borrowings, and by accepting public deposits. Several term-lending public financial institutions provide local and foreign exchange loans for new capital investment projects.

They also provide deferred payment loans, long-term working capital finance, export credit, and stock underwriting services. Lending banks secure their loans with company assets, corporate guarantees from a parent company, and, in some cases, by personal guarantees from company directors.

How does the Indian government help its companies to do better business with the U.S.A?

Local and resident foreign companies are permitted to raise medium-to-long-term loans in foreign currency for projects requiring capital equipment, technology imports, or the purchase of aircraft or ships. The Indian government permits borrowing through suppliers’ credits, buyers’ credits, syndicated loans, floating-rate notes, revolving underwriting facilities, and bonds. The Reserve Bank of India (RBI) permits loans, which mature within one year, to be repaid from net foreign exchange earnings without prior government approval.

Loans in foreign currencies can be obtained through foreign commercial banks, overseas financial institutions (e.g., the International Finance Corporation and the Asian Development Bank), and foreign export-credit agencies, in addition to Indian development and commercial banks.

 Indian companies can also raise foreign currency loans in accordance with the guidelines for External Commercial Borrowings (ECBs), issued by the Ministry of Finance. There are no restrictions on the use of such loans, except that they cannot be used for stock market speculation.

Once the RBI and Ministry of Finance have approved a loan and its terms, no limitations are placed on interest and principal payments. A firm, however, must report to the RBI through its designated banker every time an interest payment is made.

Conclusion

We, the generation which was born during or after 1950 have seen the upward increase of Indo-U.S.A. business at closed quarters. Indian growth in all spheres got inspiration from its closest cultural friend grown out of nearly 4 million U.S. citizens out of Indian origin, increasing the Indian student population in the U.S.A. and India’s willingness to involve Americans in both governmental and private business management.  

Indians now love American food, listen to American music, nearly a billion looked at Hollywood films during the Pandemic, and consider American education as a prime requisite for professional growth. I definitely join the millions to have a detailed Free Trade Agreement between India and the U.S.A., enabling two of the biggest democracies to gain from each other. 

Author Bio

Qualification: Post Graduate
Company: subramanian natarajan cpa firm
Location: NEW DELHI, New Delhi, IN
Member Since: 09 May 2017 | Total Posts: 131
A banker with 27 years of experience, a CPA from USA with specialization in US taxation, individual, partnership, S corporation or LLC taxation etc View Full Profile

My Published Posts

More Under DGFT

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

October 2020
M T W T F S S
 1234
567891011
12131415161718
19202122232425
262728293031