New Delhi: The United States has finally done the inevitable, as President Donald Trump has made it clear that his administration “intends” to withdraw preferential trade status, also known as the Generalised System of Preferences or GSP, from India. As a result, the Indian government has now put on hold its plans to offer a “favourable trade package” to the US, a top official told ThePrint.
According to the official, who refused to be identified, India was planning to offer a considerable trade package to the US, in terms of greater access for American agricultural imports to India through lowering of tariffs.
“A favourable trade package was being worked out, which would have allowed a greater entry of US agricultural produce into the Indian markets. But this is on hold now,” the official said.
The package, according to the official, was already in the process of being worked out, as the US had made it clear to the Modi government that it would be withdrawing GSP benefits. But the government was still hopeful that the Trump administration would not make any move at the moment.
According to sources in the Ministry of External Affairs, both sides had been discussing and negotiating this package for over seven or eight months now, and so, India was under the impression that the US would not make a move on the GSP.
The issue was also discussed during the India-US Commercial Dialogue, held over video conference on 13 and 14 February between India’s Commerce and Industry Minister Suresh Prabhu and US Commerce Secretary Wilbur Ross.
However, sources said the government will nevertheless try and convince the Trump administration to review the GSP benefits granted to India, as this will impact some of the labour-intensive sectors, which, in turn, will eat away certain jobs. This is something the Modi government cannot afford as it heads for the crucial Lok Sabha elections over the next two months.
Sources also said the US needs to consider India’s move to procure more oil and aircraft from America, which would address the trade deficit concerns of the US while narrowing the gap substantially in the next five years.
What is GSP?
Under the GSP programme, which has been in place since 1976, the US grants some Indian exports preferential or duty-free access into the American markets. The benefits amount to a gain of around $200 million for India. As many as 5,111 Indian products, ranging from textiles to engineering goods, are covered under GSP, of which India was using only 2,167 tariff lines.
India currently enjoys a trade surplus of $21.27 billion with the US, according to 2017-18 data from the Ministry of Commerce and Industry. Commerce Secretary Anup Wadhawan told the media Tuesday that the withdrawal will not have much impact on India’s exports to the US, which stand at around $40 billion.
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Reaction to India’s moves
Many experts are viewing this move as the US’ reaction to some measures taken by India in the last couple of years, in terms of capping the prices of medical devices and a steep rise in tariffs on some goods that are of interest to American firms.
“The Trump Administration is certainly reacting to strong, anti-import measures by the Modi government: Higher customs duties, import substitution rules, and price controls. Since negotiations between our governments showed little promise, this was the step the US administration felt it had to take,” said Rick Rossow, senior adviser and Wadhwani Chair in US-India Policy Studies at the Center for Strategic and International Studies
“But it disregards the point that both of our nations’ trade concerns largely lie with our respective imbalances with China, not each other. I hope this does not disrupt positive areas of cooperation, like defence.”
Business advocacy body US-India Business Council (USIBC) at the US Chamber of Commerce has said it will continue to try and convince the American government to revoke the decision, especially at a time when India is heading into elections.
“In keeping with the US Chamber’s longstanding support for the GSP programme, USIBC had urged the continuation of GSP benefits for India. Despite a number of serious bilateral trade issues, both India and the US have gained from trade under the GSP programme,” said USIBC president Nisha Biswal.
“With India’s elections looming, deferring today’s announced action would allow time for the two countries to address the important issues in question, and we hope officials do so swiftly.”
Biswal added that the decision can still be delayed by discussions within the next two months.
Free Trade Agreement
The two countries have also not held the India-US Trade Policy Forum — the only trade dialogue between both countries — for over a year now. This is because the US had been keen on India opening talks to have a Free Trade Agreement (FTA), which India did not pay much heed to. But that may change now.
Alyssa Ayres, senior fellow at the Council on Foreign Relations, said: “The United States and India are so far apart on crucial trade matters that the question of an FTA would be a bridge too far. We have not even been able to complete a bilateral investment treaty (BIT) after more than 10 years of trying, and a BIT would typically be the investment chapter of an FTA.
“So, if someone decides to start negotiations as a means of signalling ambition and intent, fine… But it will be a long road ahead, and quite possibly one without end.”
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$ 200 million is not much. However, it is a fact that exports have been stagnant through this government’s tenure. We have also turned to protectionism for the first time in a generation, moving away from integration. India is not part of global supply chains that weave their way to our east. This painful move also suggests there is not much meat on the bone of the defining partnership of the 21st century.