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Trade, Investment, and Industrial Policies in India: Effects on the U.S

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Trade, Investment, and Industrial Policies in India: Effects on the U.S United States International Trade Commission Trade, Investment, and Industrial Policies in India: Effects on the U.S. Economy December 2014 Publication Number: 4501 Investigation Number: 332-543 United States International Trade Commission Commissioners Meredith M. Broadbent, Chairman Dean A. Pinkert, Vice Chairman Irving A. Williamson David S. Johanson F. Scott Kieff Rhonda K. Schmidtlein Karen Laney Acting Director, Office of Operations Keith Hall Director, Office of Economics Address all communications to Secretary to the Commission United States International Trade Commission Washington, DC 20436 United States International Trade Commission Trade, Investment, and Industrial Policies in India: Effects on the U.S. Economy December 2014 Corrected version issued January 2015 Publication Number: 4501 Investigation Number: 332-543 This report was prepared principally by: Project Leaders Renee Berry and William Powers [email protected], [email protected] Deputy Project Leaders Alissa Tafti and Mihir Torsekar [email protected], [email protected] Office of Industries Laura Bloodgood, Logan Cobb, Andrew David, Tiffany Eder, John Giamalva, Mahnaz Khan, Katherine Linton, Elizabeth Nesbitt, Jennifer Powell, Philip Stone, and Michael Stanton-Geddes Office of Economics Tani Fukui, Jeffrey Horowitz, Lin Jones, David Riker, Marinos Tsigas, Ravinder Ubee, and Bennet Voorhees Office of Analysis and Research Services Robert Bauchspies, Peg Hausman, Maureen Letostak, David Lundy, Waleed Navarro, and John Stephens Interns (Economics and Industries) Matthew Barkell, Eleanor Coates, Joyce Hahn, Hong Han, Myles Hungerford, and Kimberly Lovejoy Office of General Counsel William Gearhart Content Reviewers Arona Butcher and Deborah McNay Document Preparation and Design Phyllis Boone, Monica Sanders, and Blair Williams Statistical Reviewer Jeremy Wise Office of CIO Deborah Daniels, Shala Ewing, and Sonya Wilson Under the direction of William Powers, Chief Research Division Table of Contents Abbreviations and Acronyms .............................................................................. 1 Executive Summary ............................................................................................ 5 Chapter 1 Introduction ...................................................................................... 27 Overview ................................................................................................................................... 27 Scope ......................................................................................................................................... 29 Industries Affected by Indian Industrial Policies................................................................... 29 Data Sources ............................................................................................................................. 31 Approach ................................................................................................................................... 32 Survey Method ...................................................................................................................... 32 Economic Modeling Method................................................................................................. 36 Bibliography .............................................................................................................................. 41 Chapter 2 Policy Overview and Trade and Investment Trends ........................... 43 Introduction .............................................................................................................................. 43 Overview of the History of Indian Policies................................................................................ 43 Vajpayee Government (1998–2004) ..................................................................................... 44 Singh Government (2004–14) ............................................................................................... 44 Modi Government (2014–present) ....................................................................................... 53 Trends in Trade and Foreign Direct Investment ....................................................................... 54 U.S. Engagement in India Is Rapidly Growing from a Small Base ......................................... 54 The Growth of U.S. Exports of Goods and Services to India Slowed after 2007 .................. 55 The U.S. Share of the Indian Import Market for Goods Is Steady ........................................ 57 Foreign Affiliate Sales of Services Grew Faster than Sales of Goods .................................... 58 U.S. Investment in Services Sectors Grew Faster than Investment in Goods Sectors .......... 59 Bibliography .............................................................................................................................. 61 Chapter 3 Quantifying the Effects of Indian Policies on U.S. Businesses and Economy ........................................................................................................... 65 Introduction .............................................................................................................................. 65 Survey Results ........................................................................................................................... 68 Policies Substantially Affecting U.S. Companies Engaged in India ....................................... 68 Non-policy Issues Substantially Affecting U.S. Companies Engaged in India ....................... 76 U.S. Companies’ Perception of Recent Changes in India’s Trade and Investment Policies ................................................................................................................................. 76 The Effects of Changes in Indian Policies on U.S. Exports and Indian Affiliate Sales ........... 79 Effects of Policy Changes on U.S. Company Strategy for Engaging in India ......................... 81 Prohibitive Barriers and Their Effects on U.S. Companies .................................................... 82 Effects of Changes in India’s Trade and Industrial Policies on the U.S. Economy .................... 83 Summary of Economy-wide Effects ...................................................................................... 84 Economic Effects of a Complete Tariff Removal ................................................................... 85 Economic Effects of Improved IP Protection ........................................................................ 89 Economic Effects of a Complete Removal of FDI Restrictions .............................................. 93 Combined Simulation ............................................................................................................ 97 Bibliography ............................................................................................................................ 101 Chapter 4 Tariffs and Customs Procedures ...................................................... 103 Introduction ............................................................................................................................ 103 Tariffs ...................................................................................................................................... 106 India’s Complex and Changing Tariff Schedule ................................................................... 107 U.S. Sectors Affected ........................................................................................................... 109 Additional Duties Compounded on Base Rates .................................................................. 115 Survey Results on Tariffs ..................................................................................................... 117 Case Study: Wine and Spirit Import Duties ............................................................................ 120 Customs Procedures ............................................................................................................... 121 International Rankings ........................................................................................................ 121 Inconsistent Interpretation of Customs Valuation Rules.................................................... 123 Delays in Customs Clearance Processes ............................................................................. 124 Frequent Issues with ICEGATE ............................................................................................ 125 Recent Developments ......................................................................................................... 126 Survey Results on Customs Procedures .............................................................................. 127 Bibliography ............................................................................................................................ 129 Chapter 5 Intellectual Property ....................................................................... 135 Introduction ............................................................................................................................ 135 IP-intensive U.S. Companies and Barriers in the Indian Market ............................................ 139 IP-intensive U.S. Companies Active in India ....................................................................... 139 Barriers Faced by IP-intensive Companies .........................................................................
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