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Section 301 hearing: Indian industry fights tariffs proposed by US as retaliation against digital tax


Strong arguments have poured in from the Indian industry — including basmati trade, gems and jewellery, steel and seafood — against the proposed tariff action by the US as retaliation against digital services tax imposed by India on non-resident e-commerce operators. A public hearing is being held by the US Trade Representative’s office on the suggested action.

The Indian industry, in its submissions for the USTR’s Section 301 investigations, has said that the 25 per cent additional tariff proposed by Washington will not help to eliminate DST. It may end up also hurting US companies importing from India and could be against WTO rules, they add. Section 301 of the US Trade Act authorises the US President to act against another country that “discriminates” against US business.

“One hearing, popularly known as Google Tax, happened on May 10 while rebuttal comments can be submitted till May 17,” a source tracking the matter told BusinessLine.

In June 2020, the USTR initiated an investigation on the DST 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 announced in January that India’s levy was discriminatory and actionable, and in March proposed 25 per cent retaliatory tariffs on about 40 products including shrimps, wooden furniture, gold, silver and jewellery items and basmati rice. The levies could add up to about $55 million which was the approximate amount of the DST payable by US-based companies such as Google, Amazon, Linkedin and Facebook, per calculations made by the USTR.

Exporters’ views

In their submission to the USTR, the All India Rice Exporters Association pointed out that rice trade had nothing to do with DST since it was physically traded. Also, the taxes would make products costlier US consumers, the AIREA argued.

The gems & jewellery exporters, hit most by the proposed action as 17 of the 40 targeted items belong to the sector, argued that digital taxes was being addressed at the multilateral discussions at the OECD and till a decision is reached unilateral tariffs were unwarranted. “The additional duties will burden retailers in the US, who rely on Indian gems and jewellery…it will also benefit Chinese manufacturers.”

‘Unrelated sectors hit’

The Seafood Exporters Association of India advised the USTR to settle the DST issue through discussions as retaliatory action would escalate the issue and several unrelated sectors would get hit in both countries.

Pinched by the US Steel Manufacturers Association’s request for imposition of retaliatory duties on Indian steel, the Indian Steel Association asked the USTR to reject it stating that the request was not only “arbitrary and capricious”, but the logic was also flawed as the US had already imposed additional penal tariffs on steel items citing security issues.


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