The announcement by the United States that it intends to “terminate” India’s designation as a beneficiary of its Generalised System of Preferences (GSP) could be a big blow for India’s competitiveness in items groups such as garments, engineering, and intermediary goods in the American market.
The GSP, the largest and oldest US trade preference programme, is designed to promote economic development by allowing duty-free entry for thousands of products from designated beneficiary countries. India has been the biggest beneficiary of the GSP regime and accounted for over a quarter of the goods that got duty-free access into the US in 2017. Exports to the US from India under GSP — at $5.58 billion — was over 12 per cent of India’s total goods exports of $45.2 billion to the US that year. The US goods trade deficit with India was $22.9 billion in 2017.
“At the direction of President Donald J. Trump, US Trade Representative Robert Lighthizer announced today that the United States intends to terminate India’s and Turkey’s designations as beneficiary developing countries under the Generalized System of Preferences (GSP) program because they no longer comply with the statutory eligibility criteria,” the office of the US Trade Representative said in a media release in Washington DC on Monday evening.
The move comes two days after President Trump’s reference to India as a “very-high tariff nation” and his demand for a “reciprocal tax” on goods from India, and is in line with Washington’s concerted attacks on India’s trade stance. In his address to the Conservative Political Action Conference in Washington DC on Saturday, Trump went back to his often-cited example of Harley-Davidson motorcycles to substantiate his point about India, which came at a time when the US and China have managed a temporary truce over tariffs.
India’s tariffs used to be high until about the late 1990s, with the peak customs duty — the highest of the normal rates — on non-agriculture products steadily coming down steeply from 150 per cent in 1991-92 to 40 per cent in 1997-98 and subsequently, to 20 per cent in 2004-05 and 10 per cent in 2007-08. According to WTO data, India’s average applied tariff is around 13 per cent, and it plans to move towards the ASEAN tariff rates progressively (approximately 5 per cent on average). There has, however, been a move to increase duties on a number of items by the NDA government over the last five years.
The US had launched an eligibility review of India’s compliance with the GSP market access criterion in April 2018. “India has implemented a wide array of trade barriers that create serious negative effects on United States commerce. Despite intensive engagement, India has failed to take the necessary steps to meet the GSP criterion,” the USTR statement said.