The US has announced that it intends to “terminate” India’s designation as a beneficiary of its Generalized System of Preferences (GSP). This could impact India’s competitiveness in items groups such as raw materials in the organic chemicals sector and intermediary goods in the US market, alongside items such as iron or steel, furniture, aluminum and electrical machinery.
India’s exports of organic chemicals to the US stood at $1.4 billion in 2017, US Census data showed. According to the Commerce Ministry, about 1,900-odd products exported to US with GSP may be impacted.
The GSP, the largest and oldest US trade preference programme, allows duty-free entry for over 3,000 products from designated beneficiary countries. It was instituted on January 1, 1976, and authorised under the US Trade Act of 1974. 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 — were over 12% 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.
Curbing of benefits
“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,” stated the office of the US Trade Representative (USTR) in a media release. The move came two days after Trump’s reference to India as a “very-high tariff nation” and his demand for a “reciprocal tax” on goods from India is in keeping with Washington’s concerted attacks on India’s trade stance. In his address to the Conservative Political Action Conference in Washington DC 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 tariff structure
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 from 150% in 1991-92 to 40% in 1997-98 and subsequently, to 20% in 2004-05 and 10 per cent in 2007-08. According to WTO data, India’s average applied tariff is around 13% and it plans to move toward the ASEAN tariff rates progressively (approximately 5% on average). There has, however, been a move to increase duties on a number of items by the 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, following concerns raised by its medical devices and dairy industry. The Indian government’s attempts to arrive at a “balanced” package that would address the US’s concerns and protect the Indian public’s welfare were not successful.
In 2017, India had capped prices of cardiac stents and knee implants, slashing these over 70% and 60% respectively. The move impacted US giants like Abbott, Medtronic, Boston Scientific and Stryker.
India had also said its requirement that the source animal of dairy products had never been fed animal-derived blood meals was “non-negotiable” from a cultural standpoint and it could not dilute this requirement in its certification procedure.
“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,” said the USTR statement.
India’s Department of Commerce feels the impact is “minimal”, given that Indian exporters were only receiving duty-free benefits of $190 million on the country’s overall GSP-related trade of $5.6 billion.
Some experts feel the move will not have a major impact on India also because it has been diversifying its market in the Latin American and the African region and its trade with countries of the Global South has also been expanding at a “very competitive pace”.
At the same time, the move could hit Indian exporters if it gives an edge to competitors in its top export categories to the US.
“The amount of price advantage India has versus competitor countries and what happens to their GSP privileges will determine the extent to which India’s exports will be impacted,” said Dr Jaimini Bhagwati, former ambassador to the UK who also worked in the World Bank.
These changes announced may not take effect until at least 60 days after the notifications are sent to the US Congress and the governments of India, and will be enacted by a Presidential Proclamation.
India, in June 2018, had intended to impose higher tariffs on 29 goods imported from the US in retaliation to the country’s decision to impose hefty tariffs on imported steel and aluminum products. The move, which could potentially impact products like walnuts, almonds and chickpeas, has been deferred several times.
Commerce Secretary Anup Wadhwan indicated that the government would continue to engage in “internal” discussions on these issues and that the “door for discussions” with the US was “always open”.