Updated on 25 May, 2019
News: Recently, US decided to delay the withdrawal of GSP benefits extended to India till the conclusion of elections there.
What is Generalized System of Preference?The Generalized System of Preferences (GSP) was instituted in 1971. It is the largest and oldest U.S. trade preference program. It is a preferential tariff system which involves reduced MFN Tariffs or duty-free entry of eligible products exported by beneficiary countries to the markets of donor countries. It is designed to promote economic development in designated beneficiary countries.
Why US has decided to withdraw benefit?As per USTR, India has not assured the United States that it will provide equitable and reasonable access to the markets of India", that is the eligibility criterion to avail benefits under GSP. It was followed by the review of India's market access practices by the GSP Subcommittee. One of the bases, on which review was provided, was petition received from U.S. dairy exporters and medical technology producers This decision was taken after a review process of India’s status after complaints from domestic U.S. constituencies in the dairy and medical device sectors of the barriers in market access in India. Petition mentions, India had not provided "equitable and reasonable access to its market and a has implemented a wide array of trade barriers that create serious negative effects on U.S. commerce."
Other causes of contention between India and US
Read Also: Implications Of US-China Trade War
- High trade deficit: U.S. goods and services trade with India totaled an estimated $142.1 billion in 2018. Exports were $58.9 billion; imports were $83.2 billion. The U.S. goods and services trade deficit with India was $24.2 billion in 2018.
- Tariff barriers: President Trump has called India “a very high-tariff nation” and criticized tariff imbalances, such as on motorcycles (which previously faced 100%, now 50%, Indian tariffs, compared to U.S. tariffs of 0% to 2.4%).
- Intellectual property Rights (IPR): One of the major concerns raised by US is India’s weak IPR regime. In the pharmaceutical and agricultural chemical sectors, it said India continues to lack an effective system for protecting against the unfair commercial use, as well as the unauthorised disclosure, of undisclosed test or other data generated to obtain marketing approvals.
- Services: For India, a key issue is U.S. temporary visa policies, which affect Indian nationals working in the United States. India also continues to seek a “totalization agreement” to coordinate social security protection for workers who split their careers between the two countries.
- India’s SPS barriers: Sanitary and phytosanitary (SPS) barriers in India limit U.S. agricultural exports. One of its examples is its ban on U.S. poultry imports and live swine due to avian influenza concern.
- Localization Trade Barriers: The United States continues to press India on its “forced” localization practices under RBI regulations, E-commerce policy and draft data protection bill.
Status of India-US trade relation
- In 2017, United States was India’s second largest export market (16% share) after the European Union (EU, 17%), and third largest source of imports (6%) after China (17%) and the EU (10%).
- Between India and the US bilateral trade stood at $74.5 billion in 2017-18, up 15.5 per cent from $64.5 billion in the previous fiscal.
- India’s imports from US were worth $26.3 billion in FY19 (April-December) whereas total export was worth $38.8 billion.
- Bilateral trade frictions exist on numerous fronts, but many observers believe bilateral commercial ties could be more extensive if trade and investment barriers were addressed.
Would withdrawal impact India?
- In 2018, India was the largest Beneficiary under GSP system (representing over 25% of U.S. imports under GSP)
- Top U.S. GSP imports from India include chemicals, auto parts, and tableware; those from Turkey include gold necklaces, monumental and building stone (i.e., granite), and candy
- Thus, it would impact India’s Chemicals, gems and jewellery, engineering and textiles industries
- It would push the price of most of the chemical products, which constituted a large chunk of India's exports to U.S., by about 5 per cent.
- U.S.-India trade was booming over the past year. Total goods trade grew 16.7 percent between December 2017 and November 2018. This growth would be adversely impacted by this issue.
- India's exports to the US stood at $50.57 billion in 2017 with a GSP tariff advantage of only $190 million, which was less than 0.4% of total exports. Thus, it would impact India only marginally.
- Rather it will affect US market badly, as Most of the items exported under the GSP scheme were intermediate products that are being used to manufacture value-added items in the US. Thus, increased prices will make the goods dearer for US consumer.
Steps taken by IndiaIndia has taken many steps to resolve its issues with US, such as:
- Acceptability of US market access requests related to products like alfalfa hay, cherries and pork was conveyed.
- India has conveyed to US that it has drastically reduced the tariff rates from 150% in 1991-92 to 40% in 1997-98, 20% in 2004-05 and, finally, to 10% in 2007-08. India’s trade weighted average tariffs are 7.6%, which is comparable with the most open developing economies.
- Due to various initiatives resulting in enhanced purchase of US goods like oil and natural gas and coal the US trade deficit with India has substantially reduced in the years 2017 and 2018.
- As per the WIPO’s 2018 report, the patents granted by India increased from 8,248 in 2016 to 12,387 last year.
- Initiatives such as US-India SME Forum, held recently will pave the way for collaboration and partnership between the US and Indian small and medium enterprises (SMEs)
ConclusionThe United States and India have also taken strides to advance their broader relationship. India signed the Communication, Compatibility, and Security Agreement (COMCASA) in September 2018, and the United States has outlined a central role for India as part of its new “Free and Open Indo-Pacific” strategy. With steady, continued progress in the defense relationship, both countries will need to be careful that the trade dispute does not spill over into these other aspects of the relationship. Source Read More Articles: Know About India-US Trade related Issues Findings of Inclusive Internet Index 2019