Withdrawal of the GSP will hamper India’s export growth to the US.
The US has finally withdrawn its preferential treatment to Indian exports under the Generalized System of Preferences (GSP) that covered around 2,000 items valued at $6.3 billion. Granted to India and some other developing countries in 1976, GSP allowed some of their exports to have duty-free access into the US, thus allowing them to export more and develop faster.
President Trump had notified the US Congress on 4 March about his intention to withdraw GSP benefits for India. The 60-day notice ended on 3 Mayand was to be effective from 5 June. The NDA government has tried to play down the whole episode as something not very worrisome, because, according to the Ministry of Commerce, only $190 million worth of exports will be affected. Even then, it is going to cause a serious setback to our exports which have been stagnant for sometime.
With higher duties, Indian exports will become more expensive and will lose their competitiveness vis-à-vis other developing countries’ exports to the US. In many of its exports, India is facing severe competition from countries in Southeast Asia and Africa. It will hamper India’s export growth to the US.
India is not in a position to retaliate immediately and is probably tinkering with the idea of what strategy to take. It could have imposed the proposed tariff hike on 29 items of US imports after it had imposed higher duties on steel and aluminum in 2018. But India is still dithering to do so and the last date for the imposition of duties has been postponed to 16 June. The 29 items of American imports include diverse products including finished metal items, nuts and fruits. Alongside withdrawing the GSP treatment on Indian products, the US has slapped a number of allegations on India of not offering an ‘equitable and reasonable access to American products.
With higher duties, Indian exports will become more expensive and will lose their competitiveness vis-à-vis other developing countries’ exports to the US.
President Donald Trump has been peeved by a number of moves by the Modi government in recent times and he never tires of repeating the case of the US-made Harley Davidson motorcycles on which India hiked duties in the recent past. He asked the Indian government: “Why is it that Indian motorcycles are entering free in the US, when American motorcycles are forced to pay high duties in India?” US medical device industry too has been unhappy about the rise in duties on coronary stents and knee implant components. India imposed price caps on US made medical devices in 2017. This was done by the Modi government to make healthcare more affordable for the people.
The US has been unhappy about the lax protection of intellectual property and patent rights in India and wants stricter enforcement of the IPR. It seeks for an improvement in data localisation norms and better e-commerce rules that do not discriminate in favour of local Indian e-commerce giants. It wants access to Indian markets for US dairy products and a tariff reduction on information and communications technology products. In general, the US has been unhappy about the lack of freer access for American imports to Indian markets and offers it as a justification for withdrawing the 43 years old GSP which has helped India’s exports to the US specially in items like artificial jewellery, engineering goods, building materials, pharmaceuticals, chemicals, leather, etc.
In not taking a belligerent stand, the NDA government and Prime Minister Modi are hoping to improve the economic relations with the US in the future. US is India’s second most important export destination and its total goods exports amount to $58.9 billion. India’s trade surplus of $22.9 billion with the US is something Trump wants to see reduced. It is the same reason why he targeted China and is still not accepting a compromise solution which is going to be disastrous for world trade in the future.
India is hoping that through negotiations, the GSP withdrawal can be reversed like in the case of Chile, but it is unlikely that the US will relent easily. Also, India may be interested in protecting its people from high prices of imported medical devices that make coronary stents unaffordable.
The US has been unhappy about the lack of freer access for American imports to Indian markets and offers it as a justification for withdrawing the 43 years old GSP which has helped India’s exports to the US.
The US has also tweaked the H1B visa rules which are a set back for Indians applying for jobs in the IT industry in America. The rules have become stricter thereby limiting the number of people who may qualify in getting the visa. The US has also become more vigilant about H1B visa holders getting Green Cards.
The US sanctions on Iran has made it difficult for India to import oil from Iran which has been one of India’s main and cheapest sources of oil imports. It has also imposed a ban on the Chinese technology giant Huawei from doing business with its allies. This would make it difficult for India to overcome the ban and to go ahead in inviting Huawei to help in upgrading our technology to 5G, important for the next generation reforms.
The US has not abided by WTO rules by withdrawing the GSP privileges of access to Indian exports because it continues to give such an access to other developing countries and India can take this matter to the WTO Dispute Settlement Body on grounds of discriminatory treatment. But in all likelihood, India is trying and will succeed in reaching a compromise because Mr. Modi is not interested in entering into a situation of conflict with the most powerful country in the world on matters of trade when more important strategic matters are at stake. India needs close cooperation with the US in many areas especially in fighting terror in the South Asian region in which Modi is currently championing.
This commentary originally appeared in The Tribune.The views expressed above belong to the author(s).