Blow to bilateral trade

Though the decision to withdraw India from GSP was communicated in March, no measures were taken by New Delhi to pre-empt it...

AuthorPublished: 3rd Jun 2019  12:14 amUpdated: 2nd Jun 2019  9:12 pm

The Trump Administration’s decision to terminate the special trade status to India under the Generalized System of Preference (GSP) will have huge implications for the bilateral trade. The programme allows 129 emerging countries to export goods to the United States without paying duties with respect to 4,800 products and India is the biggest beneficiary of the GSP to the tune of $5.6 billion. Ending the programme will also adversely affect American companies seeking to expand their exports to India. The argument put forward by the US government is that India failed to provide necessary assurances that it will ensure equitable and reasonable access to its markets in numerous sectors. While the US remains India’s top export partner, receiving more than $48 billion in goods from the country in 2017, just over 10% of imports from India benefit from the programme, which was to expire in December 2020. Turkey, the other new target in Trump’s trade wars, was the fifth largest beneficiary with $1.7 billion in covered imports. Though the decision to withdraw India’s designation as the beneficiary developing country was communicated in March, no measures were taken by New Delhi to pre-empt it as the country was in the election mode. This is the first major challenge for new Commerce and Industry Minister Piyush Goyal as Washington’s move could have serious implication for sectors like agriculture, automobiles and pharmaceuticals which are already facing crisis. The critics point out that the latest blow comes as a ‘double whammy’ for India after it yielded to the American pressure and stopped crude oil purchases from Iran.

Instead of escalating the matters further by counter-measures like raising the import duties on US goods, New Delhi must skilfully negotiate a way out of the muddle and work towards a mutually acceptable deal. Indo-US ties are too deep and strong to be impacted by a single issue. Moreover, if India wants to come out of the ‘developing country’ tag, it needs to engage the global powers on equal terms and be prepared to face the emerging challenges with confidence. Trump has repeatedly called out India for high tariffs. In April 2018, the US launched an eligibility review of India’s compliance with the GSP market access criterion. The bilateral trade between India and the US stood at $74.5 billion in 2017-18, up 15.5% from $64.5 billion in the previous fiscal. However, the numbers are skewed in India’s favour. For instance, India imported items worth $26.3 billion from the US in FY19 (April-December) but posted total export of $38.8 billion. The GSP was in any case meant for least-developed countries and India has graduated out of that long ago. The IMF has also categorised India as fastest growing major economy.