Threat of trade war with US looming, India to send delegation to Washington

Delegation will attempt to convince the US to extend its GSP programme, through which Delhi gets over $5 billion in zero or reduced tariffs.

Representational image | Commons

New Delhi: India is set to make another attempt at averting a trade war with the US.

A multi-ministerial delegation is flying out to Washington next week to convince the US to extend the benefits it provides to India under the Generalised System of Preferences (GSP) programme, through which Delhi gets over $5 billion in zero or reduced tariffs.

The US threat to withdraw GSP, unless it got enhanced market access for its dairy products, pharmaceuticals and medical devices, is as old as the Trump administration. But in the wake of the US decision to stop the Iran oil waiver to several countries, including India, any withdrawal of GSP benefits will further negatively impact US-India bilateral trade ties.

The US had announced its latest review of the GSP in March, when a two-month window was given to review eligibility for Indian exporters. The two-month window expires on May 4.

In view of this, a high-level delegation comprising officials from the Ministry of External Affairs and the Ministry of Commerce and Industry is flying out on 29 April for Washington, where it is scheduled to meet US Trade Representative (USTR) Robert Lighthizer and Commerce Secretary Wilbur Ross, official sources told ThePrint.

The delegation is expected to tell its counterparts to hold off GSP withdrawal for at least another year. The government is concerned that the US may follow through on its threat in the middle of the Lok Sabha elections, which may impact the ruling party’s performance.

‘A billion-dollar benefit’

India gets GSP benefits worth $5.6 billion out of the $46 billion worth of goods it exports to the US, according to 2018 data with the Directorate of Commercial Intelligence and Statistics (DGCIS) and Department of Commerce, Ministry of Commerce and Industry.

“If GSP is withdrawn, this benefit (of $5.6 billion) will vanish straightaway and these exports will be subject to duty hikes,” said Ajai Sahai, director general and CEO, Federation of Indian Exports Organisation.

The Indian ministerial visit also comes at a time when the Geneva-based World Trade Organisation (WTO) is set to decide on the eligibility of Indian export subsidies under various export promotion schemes. The US had dragged India to the WTO last year, accusing it of creating an uneven playing trade field. With India unlikely to win at WTO, the delegation is likely to plead for grace on this count as well.

The GSP threat has become a sore point between India and the US in recent months. Delhi is nervous that the withdrawal will impact small and medium enterprises as well as labour-intensive export sectors such as leather, jewellery and engineering goods among others.

“When Trump sees that India is continuing to buy Russian armaments and not American, he wants to know why the US should continue to give benefits to India,” diplomatic sources told ThePrint on condition of anonymity.

The US is also miffed with India for increasing customs duties on a range of products that are of export interest for America such as automobiles, motorbikes and a range of telecom and ICT products.

US President Donald Trump has berated India time and again for imposing 100 per cent tariff on Harley-Davidson motorcycles, even once referring to India as the “tariff king”.

“India has attempted to slow (US) imports through a range of measures, from increased customs duties to import substitution rules. So I do not believe there is much appetite in the United States to turn back from withdrawing India’s GSP benefits,” said Rick Rossow, senior adviser and Wadhwani Chair in US-India Policy Studies at the Center for Strategic and International Studies.

“The US believes it made its intentions clear nearly a year back, well ahead of the elections, and that India did not propose substantive changes.”

GSP and the subsidy dispute at WTO

Under the GSP programme, which has been in place since 1976, the US grants some Indian exports preferential or duty-free access to American markets. As many as 5,111 Indian products, ranging from textiles to engineering goods, are covered under GSP, of which India has been 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.

India has twice deferred imposing retaliatory tariffs on American exports such as almonds, walnuts and apples, in exchange for the US promising to exempt tariffs on Indian steel and aluminium. The new deadline to do so is 2 May.

“This is unilateralism. The US cannot just take these decisions arbitrarily,” said Jayant Dasgupta, former Indian ambassador to WTO. “India has also been deferring a tariff retaliation because it knows such a move will impact its own domestic industry. But India can take US to the WTO dispute body on GSP.”