As Piyush Goyal takes charge of the Ministry of Commerce and Industry, a new challenge stares him in the face as the United States went ahead with their decision to end its preferential trade treatment to India starting June 5. The decision was an execution of an announcement by US President Donald Trump to remove India from the Generalized System of Preferences (GSP) program in early March.
What prompted Trump to change status quo
The decision to terminate India’s designation as a beneficiary developing nation under the GSP programmes results from its failure to assure the US that it will provide “equitable and reasonable access to its markets.” “I have determined that India has not assured the US that it will provide equitable and reasonable access to its markets. Accordingly, it is appropriate to terminate India’s designation as a beneficiary developing country effective June 5, 2019,” Trump said ignoring several pleas by US businesses.
India is the biggest beneficiary of the GSP, which allows preferential duty-free imports of up to $5.6 billion. Indian officials had raised the prospect of higher import duties on more than 20 U.S. goods if India is dropped from the programme. Washington has been particularly irritated by India’s tightening of regulations that have undermined major U.S. companies but favoured domestic entities in the past year, Reuters reported.
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.
India responds to Trump
India, however, Saturday maintained that it will continue to work with the US to strengthen economic ties. “We view this issue as a part of this regular process and will continue to build on our strong ties with the US, both economic and people to people. We are confident that the two nations will continue to work together intensively for further growing these ties in a mutually beneficial manner,” the Commerce Ministry said in a statement. In a well-drafted response to the US, Commerce Ministry said that India like other nations shall always uphold its national interest and it viewed the issue as part of its ongoing economic relationship with the US.
Twenty-four members of the US Congress had also sent a letter to the White House on May 3 urging it not to terminate India’s access to the GSP.
What is GSP?
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.
Impact on Indian trade
Despite the Indian economy facing a slowdown, the government has said that the decision to withdraw the preferential treatment will not have a significant impact on trade. Following the announcement in March, Commerce Secretary Anup Wadhawan had said that India does not plan to impose retaliatory tariffs on the US goods. “The withdrawal will not have a significant impact on India’s exports to the US.”
“Government of India has to be conscious of our developmental and public welfare interests. Our effort was to balance the affordable prices of the medical devices without compromising on public welfare. We have very deep-rooted ties with the US. All the issues in the trade domain are on the table for discussions,” Wadhwan added.