Trump Administration Intends to Terminate India’s GSP Status
The US Trade Representative Robert Lighthizer’s statement announced Trump administration's intent to end the preferential trade status of India under the Generalized System of Preferences (GSP) on Monday, March 4. In justifying the decision, Lighthizer stated that India no longer meets the GSP’s statutory eligibility criteria.
Established by the Trade Act of 1974 in 1976, the GSP is a US preferential trade program. Aiming to bolster economic growth in developing countries, the program allows a preferential duty-free import of up to 4,800 products from 129 beneficiary nations into the United States.
To be designated as a beneficiary nation under the GSP, countries must meet nine mandatory and seven discretionary statutory eligibility criteria. The mandatory criteria set a baseline for countries who can qualify for the GSP status, whilst the discretionary criteria provide the US president selective guidelines to designate countries as beneficiaries.
According to the Trade Representative, India has failed to provide equitable and reasonable access to its markets to the US, an important discretionary criterion for GSP eligibility. Lightizer’s statement says that India “has implemented a wide array of trade barriers that create serious negative effects on United States commerce…”
In particular, the US demands lower duties on its exports to India. The country seeks price caps on medical devices such as stents and knee implants to be eliminated, and is pushing India to remove barriers on imports of dairy products.
In response to Trump administration's decision, Indian Commerce Secretary Anup Wadhawan rejected the need for any “knee-jerk reactions.” Being hopeful that bilateral talks would resolve trade issues between the two nations, Wadhawan commented that “Discussions are on with the United States, and given cordial and strong ties, (we are) keeping retaliatory tariffs out of it.”
However, observing the limited impact of the termination of the GSP status for India, the Commerce Secretary stated that in exports worth $5.6 billion to the US, the preferential treatment brings India a duty benefit, i.e. the savings on import tariffs, of just $190 million annually. In a similar vein, The Federation of Indian Export Organisations (FIEO) maintains that the move will have a minor impact on some domestic sectors such as processed food, leather, plastic, building material and tiles, engineering goods, and hand tools.
While the US-India trade deficit, favoring India, amounted to $27.3 billion in 2017, the Indian Ministry of Commerce and Industry claims that the increased purchase of US oil, natural gas, and coal has been instrumental in “substantially” reducing the trade deficit in 2017 and 2018. Furthermore, India remains one of the most lucrative markets for US companies such as Apple, Netflix, and Facebook.
Currently, India stands as the largest beneficiary of the US’s GSP program and terminating its eligibility as beneficiary is deemed to be the “strongest punitive action” against the country by the US since President Trump took office in 2017.
In response to the GSP issue, India is exploring an array of options ranging from bilateral dialogue with the US to retaliatory tariffs. Depending on the course of the next two months, India may impose retaliatory tariffs on 29 US products from April 1, 2019. Pravin Krishna, Professor of international economics at John Hopkins University, remarked that such a move would hurt the US consumer by ultimately transfering the added cost to consumer goods.
Trade experts also believe that the country has the alternative to take the dispute over GSP with the US to the World Trade Organisation, which may be a “long-drawn” process.
Apart from India, the Trump administration also intends to end Turkey’s GSP status, as mentioned in the US President’s issued letter to Congress. In the absence of any intervening action, the GSP status for the two countries is set to terminate in about 60 days on May 3, 2019.