From Internet Shutdowns to Dairy Feed Rules: USTR Report Flags Trade Barriers in India Ahead of Potential Tariff Retaliation
In its recent 2024 National Trade Estimate Report, the United States Trade Representative (USTR) has placed India’s regulatory approach in the limelight with issues ranging from routine internet shutdowns to import restrictions on dairy products. These problems, defined as non-tariff barriers (NTBs), are at a tense moment in U.S.-India trade relations, and Washington has threatened reciprocal tariffs if New Delhi does not resolve long-standing complaints. As both countries walk a tightrope balancing strategic alliance and economic rivalry, the report highlights increasing tensions that might remake two-way trade relations.
Internet Shutdowns: Disrupting Digital Trade and Foreign Investment
In its recent 2024 National Trade Estimate Report, the United States Trade Representative (USTR) has placed India’s regulatory approach in the limelight with issues ranging from routine internet shutdowns to import restrictions on dairy products. These problems, defined as non-tariff barriers (NTBs), are at a tense moment in U.S.-India trade relations, and Washington has threatened reciprocal tariffs if New Delhi does not resolve long-standing complaints. As both countries walk a tightrope balancing strategic alliance and economic rivalry, the report highlights increasing tensions that might remake two-way trade relations.
Key Impacts Highlighted in the Report:
- Business Operations: U.S. tech firms, including cloud service providers and e-commerce giants, face operational chaos during shutdowns. A 2023 shutdown in Manipur disrupted supply chains for Amazon and Microsoft’s local partners.
- Financial Losses: The Indian Council for Research on International Economic Relations (ICRIER) estimates that a single day of internet blackout costs India’s economy $78 million.
- Data Localization Conflicts: Shutdowns compound tensions with U.S. firms already wary of India’s data localization mandates, which force companies to store data domestically.
“Internet blackouts are the new trade barrier no one saw coming,” said Alyssa Ayres, a former U.S. State Department official. “They create unpredictability for foreign enterprises operating in India.”
Dairy Feed Regulations: A Sticky Point for Agricultural Trade
The USTR report also focuses on India’s restrictive dairy import policies, such as its ban on animal feed containing genetically modified (GM) content or blood meal. Such policies, allegedly designed to prevent India’s cattle from falling ill with diseases like mad cow disease, in fact block most U.S. dairy feed exports.
Why the Rules Matter:
- Market Access: The U.S. is a major producer of soybean meal and corn gluten feed—staples in dairy nutrition—but India’s GM restrictions and zero-tolerance phytosanitary measures have kept American exporters at bay.
- Economic Disparity: India’s $140 billion dairy sector, the world’s largest, remains insular. U.S. feed exports to India totaled just $12 million in 2023, compared to $1.2 billion to China.
- WTO Disputes: The USTR alleges these rules violate WTO’s Sanitary and Phytosanitary (SPS) Agreement by lacking scientific justification.
Indian officials defend the policies as critical for safeguarding livestock. “Our dairy sector supports 80 million rural households,” said Union Minister Parshottam Rupala. “We cannot compromise on biosecurity.”
The Looming Threat of Reciprocal Tariffs
The USTR criticism comes against the backdrop of smoldering U.S. irritation with India’s tariff structure. While there has been progress in areas such as defense and renewables, Washington argues that India still has high import tariffs on electronics, motorbikes, and farm products. The U.S. trade deficit with India reached $45 billion in 2023, triggering demands for retaliation.
Potential Targets for U.S. Tariffs:
- Textiles: A 10% tariff on India’s $12 billion apparel exports to the U.S.
- Seafood: Higher levies on shrimp and basa fish, which account for $7 billion in exports.
- Chemicals: Duties on generic pharmaceuticals and dyes.
The Biden administration has not yet invoked Section 301 of the Trade Act—a tool used against China—but experts warn India could face similar action. “Reciprocal tariffs are on the table if negotiations stall,” warned trade attorney Scott Lincicome.
India’s Counterarguments and Strategic Moves
New Delhi has rebuffed the USTR’s claims as overreach, emphasizing its sovereign right to regulate digital and agricultural sectors. However, behind the scenes, India is taking steps to mollify Washington:
- Digital Reforms: A new Telecom Bill imposes stricter oversight on internet shutdowns, requiring higher-level approvals.
- Dairy Feed Compromises: Offers to allow limited GM feed imports under certification schemes.
- Trade Deals: Fast-tracking talks on a mini-trade pact covering medical devices and cherries.
Yet, progress remains slow. “India’s regulatory system is labyrinthine,” said U.S. Chamber of Commerce VP John Murphy. “Good intentions aren’t enough—we need enforceable changes.”
Implications for U.S.-India Relations
The USTR report underscores a paradox: while the U.S. and India grow closer geopolitically—via the Quad alliance and defense pacts—economic ties are increasingly fraught. Key areas at risk:
- Tech Collaboration: U.S. firms may hesitate to invest in India’s digital infrastructure amid shutdown risks.
- Climate Goals: India’s renewable energy expansion, reliant on U.S. solar tech imports, could stall if tariffs escalate.
- China Decoupling: Washington needs India as a supply chain alternative to China, but trade spats complicate this pivot.
Navigating a Precarious Tightrope
The USTR’s report illustrates a pivotal turning point for U.S.-India trade. Internet shutdowns and dairy regulations might appear to be specialized issues, but they represent larger conflicts between India’s protectionist tendencies and America’s free-trade expectations. Reciprocal tariffs would hurt both economies: India’s export-oriented industries would collapse, and U.S. manufacturers would pay more for Indian textiles and generic medicines.
To prevent a trade war, reason must win. India may propose phased concessions on dairy feed and data legislation, and the U.S. can postpone tariffs for market access victories. As geopolitical partners, both countries have too much to lose to allow trade tensions to upset a hard-won alliance. The way ahead requires pragmatism—and an understanding that in international trade, compromise is the only currency that counts.
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