Foreign Policy Watch: India-United States

U.S. may end zero-tariffs for India


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

  1. A move to withdraw the Generalized System of Preferences (GSP) from India,
  2. India is the world’s largest beneficiary of a scheme that has been in force since the 1970s.
  3. However the US plans to the strongest punitive action against India, vowing to reduce the U.S. deficit with large economies.

What is GSP?

  1. 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.
  2. The developed countries, or the countries that extend this trade preference are called donor countries, and the benefit-receiving countries are called beneficiary countries.
  3. 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.
  4. 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

  1. 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.
  2. The business in a rapidly growing online market set to touch $200 billion by 2027 if not restricted.
  3. 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.
  4. 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?

  1. At the heart of the problem is India’s view on the two e-commerce models that exist today: marketplace and inventory.
  2. 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.
  3. India has not allowed FDI in inventory-driven models of e-commerce.
  4. 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.
  5. 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.
  6. It means that Amazon and Flipkart can only operate the marketplace model in India.

Why put restrictions on E-coms?

  1. 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.
  2. 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.
  3. 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.
  4. The rule would not allow sellers on these giant e-coms to make bulk purchases from the wholesale units of the companies.
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kumar sudhansu
kumar sudhansu
3 years ago

Very nice explanation.???