Climate Action

Why the US should not take India out of the GSP Benefit

March 19, 2019 8:06 AM

Last Tuesday US Trade Representative’s office announced its’s intent to remove India from Generalised System of Preference (GSP) and served a 60 days’ notice to India.

It cannot be denied that as a growing manufacturing base, India needs the concessions offered by GSP to continue growing. Generalised System of Preference list included developing countries like India that needed support from developed countries like the US to improve their export margins, build demand, manufacture improved products, and generate revenue through it to better their own economic and industrial infrastructures. In case of India, GSP concessions extended by the US amounted to duty reduction of US$ 190 million per annum, which is quite a lot.

Besides bringing the countries with minimal share in the US’s import market, the opportunity to flourish and build quality manufacturing base; GSP offered manufacturers in the US consistent competition to claim the market from more affordable products. Therefore, it is apparent that denying these concessions will not only affect India’s manufacturing initiatives, but also harm US. In the same breath, we need to point out that last year, US imposed penal import duties on aluminium and steel imports from India (among other countries) citing security threats and also challenged India’s export subsidy regime at the World Trade Organization (WTO). So, it may appear that this recent initiative is actually an extension of Trump Government’s pursuit for closing the trade deficits. However, as it appears, in search of solutions, the US Trade Representatives are overlooking the effect of their policies to their own country.

However, this recent initiative that affects India through shrinking export horizon will lead manufacturers in the US to lose their competitive approach towards global market as well.

India exported $ 48 bn worth of products to the US in FY 17-18, out of which India received preferential tariff on exports worth of nearly $5.6 billion. If India is removed from GSP list, 50 out of the 1,937 products that it exports may be stopped from crossing the borders. This will create product utilization issue and cost Indian exporters and manufacturers a fortune, as they might have to sell these items at low cost or wait to forge new trade relations, where these items can be accepted at (if not same then) a similar cost. India’s share in the U.S’s imports account for 2.1% of overall U.S. imports, which can be considered meagre in comparison with China (22%), Mexico (13%), Canada (13%), Japan (6%) and Germany (5% share in India’s imports). In addition, India has tried to appeal to the US citing the benefit of technological evolution and growth through competition with cost-effective and price-competitive imported inputs in the domestic market. And also highlighted the fact that India’s import of oil and gas from the US in 2018 (worth over $3 billion) and growing demand for items like energy and civilian aircraft etc will help in bridging the trade deficit gap between the countries, the appeal has not given credit. The US has insisted before that India reduce its trade surplus. Citing that India is the 11th largest trade surplus country for the US and enjoyed trade surplus of $21 billion in 2017-18. However, in highlighting our growth trajectories, the US has forgotten that we are still a developing country, trying to get out of the imposing binds of poverty, unemployment, energy deficit, and focusing on building a manufacturing base to support socio-economic growth.

As a matter of fact, GSP was designed to help out the countries with such characteristics. And removing eligible countries from that list can be considered as total reverse of US’s own trading code and the betrayal of the responsibilities that a developed country bears.