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, New FDI norms
Mains level: Read the attached story
- India could lose a vital U.S. trade concession, under which it enjoys zero tariffs on $5.6 billion of exports to the United States, amid a widening dispute over its trade and investment policies.
US sought action: GSP withdrawal
- A move to withdraw the Generalized System of Preferences (GSP) from India,
- India is the world’s largest beneficiary of a scheme that has been in force since the 1970s.
- However the US plans to the strongest punitive action against India, vowing to reduce the U.S. deficit with large economies.
What is GSP?
- Generalized System of Preferences (GSP) is a preferential tariff system under which developed nations extend reduced MFN tariffs (Most Favoured Nation) or duty-free entry of certain goods into their markets, to the developing nations.
- The developed countries, or the countries that extend this trade preference are called donor countries, and the benefit-receiving countries are called beneficiary countries.
- The GSP is an exemption from the MFN principle under which the WTO members are obliged to treat all other WTO members equally as their ‘most favoured’ trading partner-nation.
- GSP benefits Indian exporters indirectly through the benefits that are gained by the importers via reduced tariffs and/or duty-free entry.
Bone of Contention: New FDI norms in E-com
- The trigger for the latest downturn in trade ties was India’s new rules on e-commerce that restrict the way of famous e-com sites.
- The business in a rapidly growing online market set to touch $200 billion by 2027 if not restricted.
- India has courted foreign investment as part of his Make-in-India campaign to turn India into a manufacturing hub and deliver jobs to the millions of youth.
- Trump, for his part, has pushed for U.S. manufacturing to return home as part of his Make America Great Again campaign.
What are the new norms?
- At the heart of the problem is India’s view on the two e-commerce models that exist today: marketplace and inventory.
- India allows 100 percent foreign direct investment (FDI) in the marketplace model of e-commerce, which it defines as a tech platform that connects buyers and sellers.
- India has not allowed FDI in inventory-driven models of e-commerce.
- The inventory model, which Walmart and Amazon use in the United States, is where the goods and services are owned by an e-commerce firm that sells directly to retail customers.
- The restriction is aimed largely at protecting India’s vast unorganized retail sector that does not have the clout to purchase at scale and offer big discounts.
- It means that Amazon and Flipkart can only operate the marketplace model in India.
Why put restrictions on E-coms?
- The e-commerce giants in India have developed complicated seller structures that helped them comply with the inventory control rule while exercising some level of control over inventory.
- Traders and small online sellers have accused them of violating the spirit of the law and of using the structures to offer deep discounts, accusations they deny.
- The new rules state that the inventory of a seller or vendor will be seen as being controlled by a marketplace if the vendor purchases more than 25 percent of its inventory from the marketplace, or any of its group firms.
- The rule would not allow sellers on these giant e-coms to make bulk purchases from the wholesale units of the companies.