The latest announcement of terminating India’s designations as a beneficiary developing country under the Generalised System of Preferences (GSP) programme, by Donald Trump’s administration has created an atmosphere of uncertainty regarding its impact on Indian exporters to the United States. Citing reasons of non-compliance with the statutory eligibility criteria, the US government has revoked the GSP programme, which will come into effect in the next two months.
In April last year, the United States Trade Representative (USTR) launched a review of India’s compliance with GSP eligibility criteria, following petitions from National Milk Producers Federation, US Dairy Export Council and the Advanced Medical Technology Association, which was a reaction against slashing of prices of medical devices such as coronary stents and knee implants by up to 75 per cent by the Indian Government, to make them more affordable in public interest. Following this, in November 2018, the US had partly withdrawn GSP on 50 items; including agricultural produce, leather, textiles, chemicals and others, that were worth around $70 million. Negotiations have been underway, with the US government pressing India to not impose such price caps.
Since last year, India and the US have been working on a mutually beneficial package to resolve these trade issues, and the Indian government has been more than receptive in addressing American concerns by proposing to replace the current price cap policy for coronary stents with a suitable trade margin regime.
India has also offered to simplify their certification procedures for dairy imports from the US, a positive indicator towards its inclination for continuing negotiation with US demands. But the recent announcement of withdrawal could derail the progress made so far. The US is the second biggest trading partner for India, after China. It accounts for 12 per cent of India’s exports, including exports from some of India’s major labour-intensive segments like garments, gems and jewellery, chemicals, engineering goods and so on. According to US government data, India’s surplus with the world’s largest economy stood at $24.4 billion in 2016 and has been declining from $22.9 billion in 2017 to $21.3 billion in 2018.
In fact, it must be noted that exports from the US have increased substantially from $25.7 in 2017 to $33.12 billion in 2018, showcasing a jump of approximate 29 per cent. These statistics are a clear indicator of India’s flexibility in terms of opening up its market to US goods, as opposed to the claims made by the US government in withdrawing GSP benefits to India.
India will remain the world’s fastest-growing large economy in the coming years, generating opportunities for US businesses in sectors ranging from defence to retail and oil. The commerce ministry has said that India is a thriving market for US services and e-commerce companies like Amazon, Uber, Google and Facebook with billions of dollars in revenue. In fact, despite the price control move, American companies like Abbott and Boston Scientific dominate the medical equipment market in India, while Amazon and Uber remain the top players in their respective segments.
The Trump administration needs to consider the benefits the US, too, receives under this scheme. Approximately two-thirds of US imports under GSP currently comprise raw materials, components, or machinery and equipment used by US companies to manufacture goods for domestic consumption or for exports. GSP is especially important to American small businesses, many of which rely on the programme’s duty savings to stay competitive. These benefits are real and tangible and in 2016, US importers enjoyed nearly $ 730 million in savings on import duties under it. In 2017, GSP helped American companies save $894 million in taxes. Therefore, it must be understood that GSP is, in fact, a mutually beneficial programme for both countries.
The situation calls for a two-pronged approach. There is still a window for negotiations and room to arrive at a mutually acceptable deal.
