President Donald Trump has announced plans to scrap the preferential trade treatment for India, claiming that New Delhi has failed to assure the US of “equitable and reasonable” access to its markets, a move India said will not have a “significant impact” on its exports to America.
The move to end the Generalized System of Preferences (GSP) for India and Turkey is the latest push by the Trump administration to redress what it considers to be unfair trading relationships with other countries like China. Trump has pledged to reduce US trade deficits, and has repeatedly called out India for high tariffs.
On Monday, President Trump notified Congress in letters of his “intent to terminate” trade benefits for both countries under the GSP eligibility criteria.
Under the United States GSP programme, nearly 2,000 products including auto components and textile materials can enter the US duty-free if the beneficiary developing countries meet the eligibility criteria established by Congress.
India was the largest beneficiary of the programme in 2017 with USD 5.7 billion in imports to the US given duty-free status and Turkey the fifth largest with USD 1.7 billion in covered imports, according to a Congressional Research Service report issued in January.
In a letter to Speaker of the US House of Representatives Nancy Pelosi, Trump said he was determined that New Delhi had “not assured” the US that it would “provide equitable and reasonable access” to the markets of India.
“I am taking this step because, after intensive engagement between the United States and the Government of India, I have determined that India has not assured the United States that it will provide equitable and reasonable access to the markets of India,” Trump said.
“I will continue to assess whether the Government of India is providing equitable and reasonable access to its markets, in accordance with the GSP eligibility criteria,” Trump said in his letter.
In New Delhi, Commerce Secretary Anup Wadhawan, while reacting to the US move, said India exports goods worth USD 5.6 billion under the GSP, and the duty benefit is only USD 190 million annually.
India mainly exports raw materials and intermediate goods such as organic chemicals to the US, he said.
“GSP withdrawal will not have a significant impact on India’s exports to the US,” he told journalists.
He said “the benefits in absolute sense and a percentage of trade involved are very minimal and moderate”.
The US Trade Representative’s Office has said that removing India from the GSP programme would not take effect for at least 60 days after notifications to Congress and the Indian government, and it will be enacted by a presidential proclamation.
As many as 3,700 products get GSP benefits but India export only 1,900 items such as chemicals and engineering under that concession which was introduced in 1976 by America.
President Trump, who has vowed to reduce US trade deficits, has repeatedly called out India for its high tariffs.
At a White House news conference on October 1, Trump described India as a “tariff king”.
On Saturday, while addressing a four-day annual Conservative Political Action Conference in Maryland, he again accused India of being a “high tariff nation” and threatened to impose “a reciprocal tax” to match the heavy duties that New Delhi imposes on goods imported from the US.
The GSP criteria include, among others, respecting arbitral awards in favour of US citizens or corporations, combatting child labour, respecting internationally recognised worker rights, providing adequate and effective intellectual property protection and providing the US with equitable and reasonable market access.
Countries can also be graduated from the GSP programme, depending on factors related to economic development.
In a separate letter to congressional leaders, Trump also informed the Congress of his intent to terminate the GSP beneficiary designation of Turkey.
Trump’s letter to Pelosi, experts said, could be seen as a major setback to India-US bilateral relationship, in particular in the trade sector.
In a separate statement, the US Trade Representative (USTR) said India’s termination from GSP followed its failure to provide the US with assurances that it would provide equitable and reasonable access to its markets in numerous sectors.
The Trump administration had launched an eligibility review of India’s compliance with the GSP market access criterion in April 2018.
“India has implemented a wide array of trade barriers that create serious negative effects on United States commerce. Despite intensive engagement, India has failed to take the necessary steps to meet the GSP criterion,” the USTR said.
On further course of action, Commerce Secretary Wadhawan said issues remained open for discussion in the future as nothing goes off the table.
Given the ongoing situation on the trade front, “I do not think any knee-jerk reactions would be warranted” from the Indian side, he said.
On the concerns being raised by the US on “high tariffs” in India, he said that “we do not agree with that at all. Our tariffs are very consistent with the bound rates that we are entitled to in the World Trade Organisation”.
Reacting to the Trump administration’s move, the US-India Business Council urged it to continue the GSP benefits for India.
Despite a number of serious bilateral trade issues, both countries have gained from trade under the GSP programme, it said.