US President Donald Trump | Photo: Reuters
US President Donald Trump has signed off on a presidential decree to cut off India’s tariff-free access to the US market under the Generalised System of Preferences (GSP) scheme. “I have determined that India has not assured the United States that India will provide equitable and reasonable access to its markets,” he said in a statement on Friday.
The move drew a mild reaction from the new government in New Delhi, which said it was “unfortunate” and hinted at further talks on the matter. “In any relationship, especially in the area of economic ties, there are ongoing issues which get resolved mutually from time to time. We view this issue as part of this regular process and will continue to build on our strong ties with the US, both economic and people to people,” the commerce department said in an official release.
Senior officials said a decision on whether India would pursue the issue further with the US would be taken later by the new commerce minister, Piyush Goyal. However, the time window remains small as the US is set to discontinue the tariff benefits starting June 5.
New Delhi also pointed out that GSP benefits were “unilateral and non-reciprocal in nature extended to developing countries”, and that they couldn't be used for advancing Washington DC's trade interests and non-discriminatory benefits.
India is the largest beneficiary nation under the GSP, US’ oldest preferential trade scheme, and exported goods worth $6.35 billion under the scheme last year.
Traders remain tense
In respect of products having GSP benefits of 3 per cent or more, exporters might find it difficult to absorb the loss, the Federation of Indian Export Organisations (FIEO) said. Despite having a minimal impact on India's overall outbound trade with the US, specific exports from India in a diverse set of sectors such as jewellery, leather, pharmaceuticals, chemicals and agricultural products are set to face higher costs and competition, the FIEO said.
India’s total benefits from GSP tariff exemptions amounted to $260 million in 2018, according to the data from the Office of the United States Trade Representative. However, this was only a small piece of India's overall exports to the US in the same period, which stood at $51.4 billion.
Considering this, some senior policymakers in the government have advised against pushing the GSP matter further with the US, sources said. However, traders have pointed out that Indian exports remained under pressure due to increasing competition from low-cost rivals, and that surrendering GSP claims would mean handing away market share.
FIEO President Ganesh Kumar Gupta said the move would also indirectly benefit China as the US data shows imports under the GSP had gone up as more tariffs had been placed on China under the US government's Section 301 list.
“In the first two months of 2019, GSP imports from India are up significantly for products on the Section 301 lists, but down for products where China does not face new tariffs. For India, 97 per cent of the increased 2019 GSP imports are on the China Section 301 lists,” Gupta said.
Back and forth
Back in March, the USTR’s office notified the US Congress and New Delhi that Indian exports did not qualify for GSP benefits under its updated, stricter eligibility criteria. India had pushed its case during the ensuing 60-day adjustment period when the US president was set to take a call on the matter.
However, US Commerce Secretary Wilbur Ross had assured the government that benefits won't be cut off until India's elections get over and a new government takes charge.
This assurance was given on the condition that India not put retaliatory tariffs on the US that have long been announced by New Delhi and postponed eight times since June, 2018, senior officials said. This includes a higher tax by up to 50 per cent on import of mostly agri goods like apples, almonds and walnuts and some industrial products.
The new taxes are proposed to rake in an estimated $240 million worth of additional taxes by targeting high-value US products. New Delhi has justified the move, claiming Indian industry had lost out after the Trump administration imposed a 25 per cent extra levy on steel and 10 per cent on aluminium products in May 2018.