Retaliatory Tariffs Against US

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By moderator August 3, 2019 12:51

India has imposed retaliatory tariffs on 29 American goods, in retaliation to America’s withdrawal of preferential access for Indian products from 5 June.

 

US has terminated India’s designation as a beneficiary developing nation under the key GSP trade programme with effect from 5th June 2019, after determining that India has not assured the US that it will provide “equitable and reasonable access” to its markets.

About GSP

· The Generalized System of Preference (GSP) is the largest and oldest US trade preference programme and is designed to promote economic development by allowing duty-free entry for thousands of products from designated beneficiary countries.

· It was established by the Trade Act of 1974.

· GSP helps spur sustainable development in beneficiary countries by helping them increase and diversify their trade with the U.S.

· The U.S. also believes that moving GSP imports from the docks to U.S. consumers, farmers, and manufacturers supports tens of thousands of jobs in the U.S.

· The other benefit is that GSP boosts American competitiveness by reducing the costs of imported inputs used by U.S. companies to manufacture goods in the United States. GSP is thus important to U.S. small businesses, many of which rely on the programmes’ duty savings to stay competitive.

Issue

The U.S. conducts periodic reviews of the programme. The review for India, taken up last year, focused on whether it is meeting the eligibility criterion that requires a GSP beneficiary country to assure the U.S. that it will provide equitable and reasonable access to its market.

· The Trade Representative accepted that India did not meet the criteria:

· India wants dairy products, which could form part of religious worship, certified that they were was only derived from animals that have not been fed food containing internal organs. Other exporters such as EU nations and New Zealand certify their products, but the U.S. has so far not done so.

· India has recently placed a cap on the prices of medical devices, like stents, that impacts U.S. exports of such devices

Consequences

India was the largest beneficiary of the programme in 2017 with $5.7 billion in imports to the US given duty-free status.

· The Indian export industry, however, may not feel the pinch of the GSP removal for India by the U.S as the loss for the industry amounts to only about $190 million on exports of $5.6 billion falling under the GSP category.

·But specific sectors, such as gem and jewellery, leather and processed foods will lose the benefits of the programme. A producer may be able to bear 2-3% of the loss from the change, but not more. The loss, in the export of some kinds of rice, for example, may even exceed 10%.

 

  • India has imposed retaliatory duties on certain specified goods originating in or exported from the USA while preserving the existing most favoured nation (MFN) rate for all these goods for all countries other than the USA.
  • (India first announced plans to impose new tariffs a year ago in retaliation for increased US import duties on Indian steel and aluminium. But it repeatedly delayed them while the two sides held a series of trade talks)
  • The duties are in retaliation to the US decision of significantly hiking customs duties on certain steel and aluminium products.
  • Among the targeted imports, duty on walnut has been raised from 30% to 120%, while duty on chickpeas, Bengal gram (chana) and Masur dal has been raised from 30% to 70%. This would result in a higher rate for goods imported from USAvis-a-vis other countries.
  • India had repeatedly postponed the imposition of tariffs of more than $200 million on import of US goods worth $1.4 billion since they were first announced on 20 June 2018.
  • According to the Trade Promotion Council of India (TPCI), the impact of the retaliatory tariffs imposed by India on the U.S. would amount to about $290 million about the same amount imposed by Washington on India in 2018.

Concerns

  • The strain in trade ties between the two economies comes at a time when the global economic growth rate is projected to slow down as trade tensions among major economies such as between the US and China weigh on business confidence and investments.
  • The International Monetary Fund’s world economic outlook had in April downgraded global growth to 3.3% for 2019, down from the 3.5% it had forecast in January.
  • According to the Reserve Bank of India weak global demand because of escalation in trade wars may further impact India’s exports and investment activity. The Central Statistics Office had in February lowered India’s growth estimate for FY19 to 7% from the 7.2% estimated earlier.
  • Higher Indian tariffs on U.S. goods could also impact growing political and security ties between the two nations.

The disruption caused because of trade wars among major economies offers India a chance to improve its share in the world market. India’s potential to make further gains from the gaps emerging in the supply chain in global markets should be tapped.

Note – For a detailed analysis on India – US Trade Issues, please refer our Magazine’s May Edition.

moderator
By moderator August 3, 2019 12:51