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Why Indian textile, leather exporters want restoration of preferential trade terms with US

Commerce minister Piyush Goyal has called for restoration of benefits under the US’ Generalized System of Preferences. The Trump administration removed India from GSP list in June 2019.

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New Delhi: Indian exporters from labour-intensive sectors like textiles and leather industry are extremely keen on the restoration of trade benefits worth $6 billion under the US’ Generalized System of Preferences (GSP). 

Their pitch comes after Commerce and Industry Minister Piyush Goyal made a renewed push for the restoration of these benefits, which were withdrawn in June 2019 by the Donald Trump administration, at the revived India-US Trade Policy Forum (TPF) with US Trade Representative Katherine Tai last week.

According to exporters from these sectors, the GSP scheme was withdrawn ‘prematurely’. The exporters said that while the withdrawal hadn’t been too debilitating and didn’t much affect the bilateral trade, a restoration would set some sectors on a better footing.

Goyal batted for the restoration of trade benefits under GSP in light of the fact that the Joe Biden administration has made it clear that it won’t go for a preferential trade arrangement under a limited deal with India at this point. The former Donald Trump administration had discussed a mini-trade deal and these issues were expected to be ironed out under that.

While in the past Goyal had said that lack of preferential trade with the US would not have a “significant impact” for a country of India’s size and strength, his push at the latest round of the TPF came as a surprise for those exporters who used to benefit vastly from these privileges.

Established under the US Trade Act of 1974, GSP currently benefits around 119 countries through preferential duty-free treatment. India used to receive benefits worth $6 billion on 2,167 products before it was removed from the preferential list.

Also read: India has no proposal to recognise Bitcoin as currency: Nirmala Sitharaman in Parliament

‘Premature GSP withdrawal caught everyone off guard’

According to the Cotton Textiles Export Promotion Council or ‘Texprocil’, an autonomous body under the Indian government that connects international buyers with appropriate suppliers, the “premature” withdrawal of GSP trade benefits created a financial burden for both Indian manufacturers and US retailers for cotton and textile products.

“Total export of home textiles under GSP was to the tune of approximately $100 million in 2018, which was a large amount and can not be considered as minor. The premature withdrawal has caught the Indian exporters as well as importers in the US off guard, thereby causing financial losses and slowdown in business,” Texprocil Executive Director Siddhartha Rajagopal told ThePrint.

“We sincerely hope bilateral negotiations will lead to restoration of GSP benefits on eligible products exported from India to the US,” Rajagopal added.

Indian leather exporters too were adversely affected and some missed out on vital contracts with US importers due to the GSP issue.

Ashish Katyal, chief executive of a Noida-based leather manufacturing company Malik Tanning Industries that works with international brands like Zara, also called for a return to the old system.

“Before President Trump removed India from the GSP list, we were about to sign a three-year contract with a major company, whose name I can’t divulge, that was worth a few million dollars. But after India was removed from the GSP list, they refused to sign,” he said.

Under the GSP scheme, zero duty on products like bags and accessories attracted exporters like Katyal. “If GSP benefits such as zero duty on bags and accessories are brought back, we are sure to benefit,” he added.

Lack of preferential trade had ‘minimal’ macro-level impact

Despite being withdrawn from the GSP list, India’s exports to the US continue to hover above $50 billion.

According to data from the Ministry of Commerce and Industry, Indian exports to the US were worth $47.8 billion in 2017-18, $52.4 billion in FY19, $53 billion in FY20 and $51.6 billion in FY21.

The US is one of the few countries with which India enjoys a trade surplus (exports exceeding imports).

“Restoring GSP benefits is of course welcome. But if you look at the macro picture, the lack of these benefits has not made much of a difference. Out of $6 billion value of exports under the GSP scheme, net benefit was only about $200 million,” said Ajay Sahai, Director General and CEO of Federation of Indian Export Organisations (FIEO), a trade promotion body under the commerce ministry.

However, Sahai added that if GSP benefits are restored, sectors like engineering goods, leather goods and textiles will benefit the most, and sectors like chemical and pharma will get an added boost that may increase their market share.

When India was removed from the GSP list, the FIEO had said that the move would affect sectors like imitation jewellery that received average benefit of 6.9 per cent, leather articles (other than footwear) that got average benefit of 6.1 per cent, and pharmaceuticals and surgical products that used to get benefits to the tune of 5.9 per cent.

The exporters’ body had also said that GSP withdrawal would also affect US manufacturers, who benefited from it on imports of parts and components, as well as US consumers, and also indirectly help China.

Also read: India assessing trade ties with China to protect economy from vulnerability: Shringla


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