India’s E-comm Rules Will Have Negative Impact On US Firms

India’s new e-commerce rules would have substantial negative impact on operations of American companies such as Amazon and Walmart and there was a concern that the rules were implemented without consultation, US Commerce Secretary Wilbur Ross said.

Ross has taken strong exception to what the Trump administration believes is the unfair treatment meted out by the government to US companies operating in India. “American companies are showing goodwill and cooperative attitude towards Make in India and the other programmes, but there is a limit to the discriminatory behaviour,” Ross told CNBC-TV18 in an exclusive interview.

“We treat any Indian company coming into the US exactly the same as we would treat a US company. That is the kind of change in direction we think is very useful for India and would actually help India’s growth rate,” the US official pointed out.

Excerpts from the interview:

How have your last 24 hours been, you are attending the Trade Winds Indo-Pacific event, tell us about the significance of this forum and the big picture according to you?

It is the largest single event we will have this year. There are more than a 100 companies with over 450 visits between people from those companies and local Indian firms. So it is a wonderful success from that point of view, and in fact it was oversubscribed. We had to turn down some of the people who applied late.

What about your talks with Minister Suresh Prabhu? A lot has been going on behind the scenes, both sides have been negotiating a trade package?

We had very constructive discussions. I met not just Minister Prabhu but also Minister (Arun) Jaitley, and there was an hour-long meeting with the prime minister earlier today. So we had very good, very extensive, very far-reaching discussions.

I would like to specifically ask you about what American companies and what you as a commerce secretary feel about the regulatory framework in India? From the feedback that you have received from companies, are there certain issues that they have been encountering year after year?

Yes, there are lots of issues. There is a fundamental philosophy of favouring Indian businesses over foreign firms. We hope that will change over time. In fact the US is the largest source of foreign direct investment into India, over $40 billion. We are also India’s largest export customer. We consume about 20 percent of India’s total exports. We think this should give us a very special position.

Any products that you would like to speak of? We heard your speech where you raised tariffs on automobiles, medical devices and alcohol.

Those were just examples, the whole digital economy is an important and sensitive one. The treatment of Walmart after their acquisition of Flipkart is an important issue. Walmart is continuing to expand here. Similarly, for MasterCard, there are problems with data localisation where the company is still investing. So the American companies are showing goodwill and very cooperative attitude towards Make in India and the other programmes, but there is a limit to the discriminatory behaviour and our job is to try to get a more level-playing field.

You spoke about data localisation and e-commerce as key issues in the relationship. I would like to pursue this point further, India’s central bank last year ordered all offshore service providers to store end-to-end transaction details only in India. What do you feel are the larger implications for Indo-US trade if the data localisation policy continues as it is?

We think it is not a good policy from even the Indian point of view. We can understand why you would want some data to be stored in India. However, we believe that a mirroring situation is appropriate where the data would be here, but also available to those companies elsewhere because that will give them better ability to do data analytics and at the end of the day that will be helpful to India as well.

You feel that there could be issues with regard to future investments if the policy continues as it is?

Whenever you put restrictions, there are implications; regulatory decisions trigger business decisions. We learned in the US that as you deregulate you encourage businesses to expand more rapidly. I think the same is true in India; less regulation is generally more conducive to a good business environment than more regulation.

When you took this up with Prabhu, what was his view? Any assurance that you got?

I think Prabhu is understanding the situation well. He is very familiar with the United States. He and I have had constructive meetings before and we have more to come in the future. So I think we will gradually get better combination that will take the reaffirmation of the new government before any new initiatives are undertaken, but I am optimistic that the new government will work constructively with the US.

Back to e-commerce rules. You spoke about the investment made by Wal-Mart in Flipkart, it was $16 billion. Investments have been made by Amazon as well. The new rules ban companies from selling products of firms in which they have equity and prohibit firms from making deals with sellers to sell exclusively on their platforms. What is the feedback that you received from American companies on these changes in e-commerce regulations?

They have been costly to the American companies and there is also a concern that the rules were put in without consultation; they were suddenly announced. I know the Indian government regards them as mere clarifications but they do have a very substantial negative impact on the businesses. Both Amazon and Walmart will continue to expand here, but there is also a message sent to companies not yet investing here. It’s a concern to many of them. Walmart is the largest single foreign direct investor India has ever had and they suddenly got that kind of negative impact from the new rule. It makes people worried about making investments.

Could that possibly lead to some sort of retaliation from the US as well?

There are chances whenever you have an unlevelled playing field since reciprocity and balance are an important part of the US system; whenever you introduce an unequal element you run the risk of populist sentiment of requesting some sort of an offset.

What are the American goods you would want more market access for?

I do not want to name specific products. It is a question of what is the overall regulatory philosophy, whether it is supportive of really rapid growth. When you think about it from an Indian worker’s point of view, what is the difference if the employer is American or Indian. As long as they have a good job, as long as they can have career growth, it really should not matter.

Talking about Generalised System of Preferences (GSP), a lot has been spoken about that in the last few weeks. The US has decided to withdraw those benefits for India. Do you feel the  data localisation norms in India and the e-commerce regulations had something to do with the decision of the US government on GSP benefits?

The re-evaluation of GSP was underway long before those transactions with Walmart and Amazon. There were some very specific factors that led to them and the disappointing thing was that even though those negotiations started back in April 2018, by March 2019 when the decision was announced, there was no progress which we were hoping for. Now there is potential for negotiation in the future; that is a decision that could be reversed if situations warrant. We hope that at some point India will deal with those issues and we can change things.

You say that US lawmakers have urged the government not to withdraw these benefits because they believe the loss would be for American companies. Is the US government going to ahead with the withdrawal completely or is the matter under review?

The decision has been announced.

So no going back on it currently?

No. If the Indian authorities address the issues that were raised during the GSP talks, then there is room for discussion.

Basically reciprocity is what you are talking about here?

Yes. What we are interested in is a level-playing field. We are interested in fair treatment. We treat any Indian company coming into the US exactly the same as we would treat a US company. That is the kind of change in direction we think is very useful for India and would actually help India’s growth rate.

India has deferred retaliatory tariffs on 29 US goods till May 15. Do you feel that such a decision would be ill-advised for the larger US-India trade relationship right now?

Any time a government makes a decision adverse to another one, you have to anticipate consequences. We do not believe, under the World Trade Organisation rules, that retaliation by India would be appropriate.

Possibility of any reprieve from US sanctions on Iran? India is an oil importing country, we are dependent on imported oil for about 80 percent of our energy needs.

I am happy to see that the world price of oil has gotten back to where it was prior to the announcement of the new sanctions on Iran. The US is doing its part, we increased our oil production. We are working with Saudi Arabia, we are working with the UAE, and we are working with all other sources to try to assure a balanced oil supply. It is not our purpose to hurt India with higher oil prices, but terrorism must be dealt with and that is why we are dealing with the sanctions.

Can we expect US oil companies to give oil to India at concessional rates because when it comes to Iran, we get a better credit system, we get better freight charges as well. Do you think those concessions can be extended to India?

In the US, the companies that sell oil and develop oil fields are private, they are not government controlled. Therefore, any decision on pricing and credit terms is made by the individual private company and not by the government.

What prompted President Trump to say that the US government would be hiking tariffs from 10 to 25 percent on $200 billion worth of Chinese goods? What went wrong?

It isn’t so much of what went wrong, but what is taking too long. As the president has said, we are making progress in negotiations, but he feels it is too long. Remember, these higher tariffs were supposed to take effect months ago. So he actually has been very cautious by postponing them.

The global markets are very worried about it. How far is the US government going to go with these threats? What is the kind of deal and package that the US government is looking at right now from China?

The negotiations are very complex because they cover everything from immediate purchases of LNG, aircraft, soybean and other products to structural reforms dealing with state-owned enterprises, intellectual property and enforcement mechanisms and punishments of people.

Is Vice Premier Liu He coming to the US for talks? He was supposed to come with a 100-member delegation. Are you hopeful of negotiations?

There will be negotiations, as I understand that the Chinese have announced they will be continuing with negotiations, we think that is a good thing. We just hope they come to fruition quickly.

But at the end of it, if it does not work out, would you put the blame on China?

If it doesn’t work out, the president has made it totally clear that he will do what he has said. He is not a president who bluffs, this is a president who tells you what he will do and he lives up to what he says.

A lot of developments have taken place towards India-US relationship. The Communications Compatibility and Security Agreement has been signed. We believe that Lockheed Martin and Boeing are in talks for sale of fighter jets to India? Are we going to see some defence deals?

India is a gigantic buyer of defence products, probably the largest buyer on ground and we think it makes sense from a defence point of view to diversify your sources of supply. It is also the case that the American companies make some uniquely good products. Our fighter jets are fighter jets for the next set of conflicts. So we are hopeful that with the new enhanced status of the defence relationship between India and the US, both in fighter jets and in helicopters, we are optimistic that we will get some contracts. But it also is the easiest way for India to help reduce the trade deficit that the US runs with India. We lose way over $20 billion a year more on the goods and services we buy from India than the once purchased by India from us.

On H1B, we have just heard that the US government is hiking visa application fees. Is that being considered seriously?

We are considering lots of things about immigration. India is the main beneficiary of the H1B visas, something like 70 percent of all those visas granted go to India. Many countries complain to the US that India gets such favourable treatment. So whatever be the outcome of discussions, I am quite sure India will remain at a very preferential position vis-a-vis H1B visas to the US.

You have come at a time when India is in the middle of elections, the term of the government is coming to an end. For Indo-US trade, do you feel continuity is good, continuity in policy, continuity in government?

Well, businesses like predictability, business can adjust to good news and bad news, but uncertainty is hard to adjust to. I think the more certainty, the more clarified a situation can be, especially regulatory policies and trade policies, the easier it is for commerce to flourish.―CNBC TV18

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