In early March 2019, President Donald Trump, announced that he would withdraw duty benefits on all imports from India. These benefits had been offered under the Generalised System of Preferences (GSP), a programme that allows duty-free imports of specified goods from beneficiary countries.
The scheme, introduced in 1974, was intended as a way of helping developing nations as well as giving the US manufacturers access to cheap raw material.
The March announcement should not have come as a surprise to India. In November, the US withdrew GSP benefits to some 50 products from India.
Earlier in 2018, the Office of the US Trade Representative (USTR) had begun an eligibility review of India, based on complaints received from US dairy associations and the medical technology association.
The trigger for these trade bodies to focus on India was because India had made it difficult for them to enter the market.
In the case of dairy, India had asked dairy importers to certify their products as being from livestock that had not been fed animal parts.
The reason for this is that dairy products in India are often used in religious rites, and need to be ritually “pure”.
Medical technology companies, meanwhile, have been hit hard by the Indian government providing heavy subsidies on medical equipment in order to make such equipment easily accessible. This “populist” move has meant that American companies cannot charge a premium on their products.
According to the USTR, beneficiary countries under GSP are expected to provide “equitable and reasonable access to its markets” to US companies.
India, however, has imposed several measures that the US considers protectionist, including the two steps mentioned above.
What does this mean for Indian exports? According to the government, very little.
Official sources have downplayed the impact of GSP removal. The numbers they quote seem convincing -- Indian exports to the US are valued at $5.6 billion; Indian trade authorities say that GSP covers some $190 million worth of exports and so the impact of removing India from GSP will be minimal. But any negative impact could hit the country’s balance of trade, and a big trade deficit will hit the GDP.
Exporters will also take a hit. Small and medium enterprises (SMEs) form the bulk of exporters who benefit under GSP, and having to pay duty on their goods could prove too expensive for them.
Many of these exporters are in labour-intensive industries, so if they go out of business, it could hit the labour market as well. Leather and footwear, chemicals, and bulk drugs will be the sectors most affected.
On the whole, other exports will not feel the pinch. However, the fear is that once the US has used GSP as a stick, it will make other exports from India unviable.
In the case of seafood, the US has already imposed stringent import regulations; given that the bulk of Indian seafood exports is to the US, these norms will hit India hard.
There’s also the possibility of the US imposing or increasing anti-dumping duties on a range of other goods.
The impact on exporters will likely be softened over the medium term as these players look at markets outside the US. While China and the US may both be closed to these exporters, there’s still a large market in the rest of the world.
Judging by the state of internal politics, and with elections coming up soon, the GSP issue may soon be buried or resolved to India’s benefit.
That’s because removing India from the GSP will mean that Indian goods will cost more in the US, which means that the cost of raw material for American industry could go up too.
Meanwhile, there are steps India can take to protect its exporters. For one, it can approach the World Trade Organisation. Under the Enabling Clause of the WTO’s General Agreement on Trade and Tariffs (to which both India and the US are signatories), developed countries can offer preferential treatment on a non-reciprocal basis. By removing India from the GSP on the grounds that the country isn’t providing access to its market, the US is violating this GATT clause.
India can take this matter to the WTO and, judging by a past victory against the European Union, win.