The Big Picture – US-India Preferential trade The US plans to end preferential trade status for India, under a scheme which allows certain products to enter the US duty-free. President Donald Trump said India had failed to assure the US it would provide reasonable access to its markets. India said the US move would have a “minimal economic impact”. It is the latest US attempt to counter what it sees as unfair trade practices. President Trump has pledged to reduce US trade deficits, and has repeatedly criticised India for high tariffs. As a result, he directed the US Trade Representative’s (USTR) office to remove India from a programme that grants it preferential trade treatment. Preferential trade treatment for India currently allows $5.6bn worth of exports to enter the United States duty free. In a letter to Congress, the US president said India had “not assured the United States that it will provide equitable and reasonable access to the markets of India”. Under the Generalised System of Preferences (GSP) programme, “certain products can enter the US duty-free if the beneficiary developing country meets a set of criteria established by Congress”. What is GSP?
Impact on trade relations
- GSP was a result of the 1974 Trade Act of the US
- Subsequently there was an enabling clause in the WTO in 1979 which allows developed countries to provide trade preferences at zero duty or lower than MFN tariffs to developing countries and LDCs.
- It is basically meant to help countries come out of poverty and provide employment.
- It also mentions that when goods start flowing out of developing countries it will provide jobs in the US.
- The ability of the US to access the markets of the developing countries is not part of the GSP.
- It is an unfriendly measure on the part of the US to withdraw the preferential trade with India.
- India has only a small amount of surplus with the US unlike the huge trade deficit US has with China.
- Also, the imports made from India are value added and exported to a third country by the US. Thus US is not taking into account the profit made by it on the imports from India.
- India is the fourth country after South Korea, Philippines and Japan to be withdrawn the trade tariffs.
Withdrawing trade tariffs
- Out of $48 billion, only $5.6 billion worth of goods qualify for GSP benefits.
- India accounts for more than 25% of the total GSP benefits that the US extends to beneficiary countries which is approximately $21 billion worth of imports into the US.
- Textiles, ceramics, leather, iron, glass and steel products are excluded from GSP as US wants to protect its domestic industry.
- Gems and Jewelry, engineering goods etc benefit from the GSP system.
- US wants to access Indian markets for Harley Davidson bikes, dairy products and medical devices.
- But India would have to provide the same concession to any other country that it would provide to the US under the MFN status.
- But US finds India’s reason unacceptable.
- In 2002, India had filed a case against the European Union as it had extended preferential trade tariffs to Pakistan as it was helping in preventing drug trafficking, narcotics trade etc.
- The WTO had ruled in India’s favour and said that countries places at a similar status should get equal preferential trade tariffs.
What India can do?
- There are two conditions that should be met to graduate a country from the trade tariff benefits or withdraw the same
- if the imports from a certain country exceed $180 million worth of goods
- if the imports of a good from a single country exceeds 50% of the total imports, then that product can be graduated
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- India can take US to the WTO dispute settlement body.
- But as of now the body has not been functioning due to US attitude and US not allowing nominations of fresh members to the appellate body.
- It is thus functioning in a slow manner and will stop functioning from December 2019 if the US continues in its present stance.
- India can involve other players to negotiate with the US.
- India should negotiate with the US to make it aware that India-US relationship is a broad based relation which may be affected by such trade tariffs.