Context:

There are alarm bells in India over a possible decision by the U.S. Trade Representative to withdraw the Generalised System of Preferences status.

In March 2018, the U.S. began imposing tariffs on several Indian products, and in April, the USTR began a review of India’s GSP status, based on complaints of trade barriers from India it had received from the dairy industry and manufacturers of medical devices. In November the U.S. withdrew GSP status on at least 50 Indian products.

Bilateral trade in goods and services for India is about 2% of U.S. world trade, but tripled in value between 2005 and 2017, reaching $126 billion

What is the Generalized System of Preferences (GSP)?

The Generalized System of Preferences (GSP) is a U.S. trade program designed to promote economic growthin the developing world by providing preferential duty-free entry for up to 4,800 products from 129 designated beneficiary countries and territories.

GSP was instituted on January 1, 1976, by the Trade Act of 1974. The GSP program has effective dates which are specified in relevant legislation, thereby requiring periodical reauthorization in order to remain in effect.

It involves reduced MFN Tariffs or duty-free entry of eligible products exported by beneficiary countries to the markets of donor countries.

Benefits of Generalized System of Preferences (GSP):

• Indian exporters benefit indirectly – through the benefit that accrues to the importer by way of reduced tariff or duty free entry of eligible Indian products.

• Reduction or removal of import duty on an Indian product makes it more competitive to the importer – other things (e.g. quality) being equal.

• This tariff preference helps new exporters to penetrate a market and established exporters to increase their market share and to improve upon the profit margins, in the donor country.

Benefits of GSP to India Exporters:

Under GSP, India is able to export about 2,000 product lines to the U.S. under zero tariff.

The GSP was first extended to India in 1976 as part of a global concession by the U.S. to help developing countries build their economies,

The revocation of the GSP will be a blow to Indian exporters, and the biggest in a series of measures taken by the Trump administration against India to reduce its trade deficit.

US Concern regarding GSP Continuation to developing countries:

• Bilateral trade frictions exist on numerous fronts, but many observers believe bilateral commercial tiescould be more extensive if trade and investment barriers were addressed.

• President Donald Trump’s case on what he calls “unequal tariffs” from India rests on the trade relationship in favour of India: Indian exports to the U.S. in 2017-18 stood at $47.9 billion, while imports were $26.7 billion.

• Trump Administration has criticized India for a range of unfair trading practices.
• India rests on the trade relationship in favour of India: Indian exports to the U.S. in 2017-18 stood at $47.9 billion, while imports were $26.7 billion. India favours taking a broader view of their trade ties beyond the trade balance.

• S. officials say the decision on data localisation for all companies operating in India, and the more recent tightening norms for FDI in e-commerce have aggravated the situation.

• For India, United States was its 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%) in 2017.

• Sanitary and phytosanitary (SPS) barriers in India limit U.S. agricultural exports. Recent issue is India’s purported compliance with a WTO decision against its ban on U.S. poultry imports and live swine due to avian influenza concerns the WTO held that India’s measures violated WTO SPS rules.

India’s retaliation:

In retaliation, India proposed tariffs of about $235 million on 29 American goods, but has put off implementing these five times in the past year in the hope that a negotiated trade settlement will come through.  The latest deadline expires on March 1.

The two sides differ on how to balance IP protection to incentivize innovation and support other policy goals, such as access to medicines.

India’s IP regime remains a top concern for the United States, which designated India again on its “Special 301” Priority Watch List for 2017.

India has also attempted to address the trade deficit with purchase of American oil, energy and aircraft.There have been dozens of rounds of talks between officials over the past few months, but no breakthrough.

India has attempted to address the trade deficit with purchase of American oil, energy and aircraft.

Conclusion:

The US and India reportedly are in intensive negotiations to address key trade issues, such as on the U.S. steel and aluminium tariffs and India’s GSP status.

As WTO members, the United States and India negotiate multilaterally to liberalize trade, but unable to reach a conclusion yet.

Both sides should work towards calling a halt to trade hostilities and speed up efforts for a comprehensive trade “package”, rather than try to match each concern product by product.

India must keep in mind that the larger, global picture is about U.S.-China trade issues.

If a trade deal with the U.S. is reached, India could be the biggest beneficiary of business deals lost by China.

The visit of U.S. Commerce Secretary to India this week will be watched not as much for substance, as for signals that New Delhi and Washington understand the urgency in breaking the deadlock.