India downplays impact of U.S. GSP withdrawal

Note4students

Mains Paper 2: IR | Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests

From UPSC perspective, the following things are important:

Prelims level: GSP

Mains level: Impact of US withdrawal of GSP status to India


News

  • Recently US President referred to India as a “very-high tariff nation” and demanded for a “reciprocal tax” on goods from India
  • Now it has given a 60-day withdrawal notice to India on the Generalized System of Preferences (GSP) benefits extended by US.

GSP benefits to India

  • 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 US amounted to duty reduction of only USD 190 million per annum.

Addressing US objections

  • The US had initiated the review on medical devices and dairy industries, but subsequently included numerous other issues on a self-initiated basis.
  • These included issues related to market access for various agriculture and animal husbandry products, relaxation / easing of procedures related to issues like telecom testing / conformity assessment and tariff reduction on ICT products.

Unacceptable demands

  • On the issue of dairy market access, India has clarified that the source animal had never been fed animal derived blood meal, is non-negotiable given the cultural and religious sentiment, the requested simplified dairy certification procedure and without diluting this requirement was considered.
  • On reduction of our IT duties, India’s duties are moderate and not import stopping.
  • Any MFN duty reduction would almost entirely benefit third countries.
  • Accordingly, India extended willingness to extend duty concessions on specific items in which there is a clear US interest.

US trade deficit has also lowered

  • Due to various initiatives resulting in enhanced purchase of US goods like oil and natural gas and coal the US trade deficit with India has substantially reduced in calendar years 2017 and 2018.
  • The reduction is estimated to be over USD 4 Billion in 2018, with further reduction expected in future years on account of factors like the growing demand for energy and civilian aircrafts in India.
  • This reduction has happened in the face of a rising overall US trade deficit, including with some other major economies.
  • India is also a thriving market for US services and e-commerce companies like Amazon, Uber, Google and Facebook with billions of dollars of revenue.

Way Forward

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

Back2Basics

Generalized System of Preferences

  • The GSP is one of the oldest trade preference programmes in the world and was designed to provide zero duties or preferential access for developing countries to advanced markets.
  • The U.S. GSP programme was established by the U.S. Trade Act of 1974 and promotes economic development by eliminating duties on thousands of products when imported from one of the 129 designated beneficiary countries and territories.
  • In April 2018, the Office of the United States Trade Representative (USTR) announced that it would review the GSP eligibility of India, Indonesia, and Kazakhstan.
  • The proposed review for India was initiated in response to market access petitions filed by the U.S. dairy and medical device industries due to recent policy decisions in India, which were perceived as trade.
Foreign Policy Watch: India-United States
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