Trade war. US proposes retaliatory tariffs up to 25% on select Indian products

The US has proposed to impose retaliatory tariffs up to 25 per cent on a wide variety of Indian products ranging from shrimps and basmati rice to gold and silver items in response to digital services tax imposed by India on non-resident e-commerce operators.

Washington holds that India’s digital services tax, also known as equalisation levy or Google tax, is unreasonable or discriminatory and burdens or restricts US trade.

“The Indian government will examine the proposed action with the stakeholders concerned and take suitable measures keeping its trade and commercial interest of the country and overall interest of its people,” an official tracking the matter told BusinessLine.

The US Trade Representative (USTR) office published its proposed action in Section 301 Investigation, of India’s digital services tax on March 26, and it has decided to convene virtual public hearings and accept rebuttal comments in relation to the potential action from affected parties in May 2021.

Other items in the initial list of targeted products from India include bamboo products, cigarette paper, cultured pearls, precious or semi-precious stones, brassieres, jewellery and wood furniture.

Initial estimates indicate that the value of the digital services tax payable by US-based company groups to India will be up to approximately $55 million per year, the USTR stated indicating that the retaliatory tariffs could add up to the amount. Companies affected by the 2 per cent equalisation levy include Google, Amazon, Linkedin and Facebook

The USTR has proposed similar action against Turkey, Italy, the UK, Austria and Spain.

Section 301 of the US trade law allows the country’s President to take all appropriate action, including tariff-based and non-tariff-based retaliation, to obtain the removal of any act or policy that it finds unjustified, unreasonable, or discriminatory,

In June 2020, the USTR initiated an investigation of the equalisation levy of 2 per cent applicable on non-resident e-commerce operators, not having a permanent establishment in India. The threshold for this levy is ₹2 crore.

Washington held consultations with New Delhi on the issue on November 5, 2020 where. India argued that the purpose of the equalisation levy is to ensure fair competition, reasonableness and exercise the ability of governments to tax businesses that have a close nexus with the Indian market through their digital operations. “It is a recognition of the principle that in a digital world, a seller can engage in business transactions without any physical presence, and governments have a legitimate right to tax such transactions,” the official said.

However, the US was not convinced about the reasoning and on January 6, 2021, determined that India’s levy is unreasonable or discriminatory and burdens or restricts US commerce, and therefore actionable under sections 301 of the Trade Act.