“Let us never negotiate out of fear, but let us never fear to negotiate.” Former US President John F. Kennedy once said these words as a part of an appeal to the country’s arch enemy at the time — the Soviet Union.
These are wise words, and one can only hope that the Indians engaging in trade talks with the United States are mindful of what they mean and why they’re important.
Going by the comments Indian officials have made so far, the government intends to play hardball with the US.
President Donald Trump now occupies the oval office, nearly 60 years after Kennedy spoke those words. And Trump is peeved at India for charging import duty on high-end motorcycles, particularly Harley-Davidson.
In February, India had reduced customs duty on completely built motorcycles of all engine capacities to 50 percent. This was a significant reduction in duty, since bikes with engine capacities of 800 cc or lower attracted 60 percent duty earlier, while those with capacities higher than 800 cc attracted 75 percent.
But Trump, who has taken it upon himself to re-negotiate all of US’ bilateral and multilateral agreements, has made it clear bringing the duty down to 50 percent barely amounts to anything meaningful. What he wants is for the duty to be cut to zero, which is what Indian companies pay in the US.
If one were to, just for an instant, set aside the protectionist glasses through which we see the world, they would realise that there is nothing wrong with what Trump wants. His duty is to protect US’ interests, just like it is our government’s duty to protect ours.
India’s stand in the negotiation is that it wants to continue having uninterrupted access to the US market under the generalised system of preferences (GSP). GSP provides access to the market at low or zero duty for around 3,500 Indian products.
“We are open to further import duty cut on high-end bikes like Harley-Davidson. But we need assurance that India’s market access to the US under GSP will not be curtailed,” Indian officials have been quoted as saying.
If this is what the Americans want as well, and if we can achieve it, then it would amount to a massive victory.
India is the largest beneficiary of the US’ GSP programme, exporting goods worth $5.6 billion every year. If our access to US gets curtailed, it would impact the revenue of players in the textiles, engineering, gems and jewelry, and chemical sectors.
Now let us flip the coin and take a look at what is at stake for the US. Harley-Davidson has had an assembly unit in Haryana since 2011, from where it supplies both Indian and overseas markets.
The company produces around 10,000 vehicles a year and sells around 4,000 units in the domestic market. These motorcycles are priced between Rs 5 lakh and Rs 50 lakh. Considering an average price of Rs 25 lakh per unit, the company’s revenue from India is around Rs 1,000 crore.
Ideally, a reduction in import duty should help Harley Davidson in India, because if the selling prices of its bikes drop, they will start selling more. But Harley Davidson’s India business imports kits for only 4 of the 16 products it manufactures here.
In fact, in a media interview, Peter Mackenzie, Managing Director, Harley Davidson India and Greater China, actually said that a reduction in customs duty would not have a major impact, though it was always welcome.
Being in Haryana, Harley Davidson is in a position to meet most of its needs from local vendors. The fact that it not only uses these parts on the bikes it sells in India, but also on the ones it exports to other countries, suggests that the parts would not be inferior in quality.
Clearly, India does not have too much to lose by lowering import duty on imported, high-end motorcycles. We can give Trump what he wants because it would be in our interest to feed his ego, and we would not have to pay heavily to do it. In fact, if things go India’s way, our officials can even extract a better deal for the Indian IT sector while they’re at it.