Context:

The U.S. has ultimately acted on its threat to withdraw concessions granted to Indian imports under the Generalised System of Preferences.

The Indian government confirmed that the United States has given a 60-day withdrawal notice to India on the Generalised System of Preferences (GSP) benefits, which amount to duty reduction of 190 million dollars a year.

About Generalised System of Preferences (GSP):

The Generalized System of Preferences (GSP) is a U.S. trade program designed to promote economic growth in 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.

GSP has been given on non-reciprocal basis yet the US has linked it with market access and tariff reductionwhich is against the basic tenets of GSP.

Often GSP authority lapses before it is renewed, in which case duties on imports that are normally covered are held in escrow pending renewal.

US President has said he intends to end the preferential trade status granted to India and Turkey, asserting that New Delhi has failed to assure America of “equitable and reasonable” access to its markets, an announcement that could be seen as a major setback to bilateral trade ties.

India says GSP concessions by US amount to duty reduction of $190 million:

Since the review initiated by the United States in April 2018 on India’s GSP benefits, both countries have been discussing various trade issues of bilateral interest for a suitable resolution on mutually acceptable terms.

GSP benefits are envisaged to be non-reciprocal and non-discriminatory benefits extended by developed countries to developing countries.

In India’s case, the GSP concessions extended by the United States amounted to duty reduction of only 190 million dollars per annum.

The United States had initiated the review on the basis of representations by the US medical devices and dairy industries, but subsequently included numerous other issues on a self-initiated basis.

GSP duty benefit withdrawal by US will have marginal impact on few sectors:

• The US decision to withdraw duty benefits under its Generalized System of Preferences (GSP) programme will have a marginal impact on few domestic sectors such as processed food, leather, plastic, and engineering goods, exporters body FIEO.

• India is predominantly exporting intermediate and semi-manufactured goods to the US under the GSP, the same has helped in cost-effectiveness and price-competitiveness of American downstream industry.

• Federation of Indian Export Organisations (FIEO) President said that as these sectors were availing higher GSP benefits, the government should look into providing fiscal support to these segments.

• The government should look into providing fiscal support to such sectors so that exporters reduce their export prices factoring in the fiscal support with a view that the landed price of such products remain more or less what was under the GSP regime.

• Therefore, the GSP withdrawal will also impact the competitiveness of many manufacturing sectors and will hit the consumers at the same time.

• Adding that the import price of most of the chemical products, which constituted a large chunk of India’s exports, is expected to increase by about 5 percent.

• The withdrawal of the benefits will also hit the import diversification strategy of the US where it is keen to replace China as the main supplier to other developing countries. India’s exports to the US will remain unaffected despite withdrawal.

Conclusion:

The issue of Indian tariffs being high has been raised from time to time. It is pertinent that India’s tariffs are within its bound rates under WTO commitments, and are on the average well below these bound rates.

India’s trade-weighted average tariffs are 7.6 per cent, which is comparable with the most open developing economies and some developed economies.

On developmental considerations, there may be a few tariff peaks which are true for almost all economies.

We hope that the exporters would be able to absorb the duty loss where it is 2-3 percent, we need to provide fiscal support to those products where GSP tariff advantage was significant particularly in the labour-intensive sector.

Way Forward:

India said it was able to offer a “very meaningful way forward” on the issue of market access for various agriculture and animal husbandry products.

Relaxation or easing of procedures related to issues like telecom testing, besides conformity assessment and tariff reduction on information and communications technology (ICT) products.

India was agreeable to a very meaningful mutually acceptable package on the above lines to be agreed to at this time, while keeping remaining issues under discussion in the future.

It is important to recognise that China, unlike India today, was not browbeaten over tariffs in the 1990s when it was at a similar stage of development.

This is because the US besides not being led by a truculent President was heavily invested in China’s economy.

India needs to ensure a similar level of economic engagement with the rest of the world.