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India’s option is to negotiate GSP issues

GSP withdrawal impact modest, says DBS


GSP withdrawal impact modest, says DBS


Export Import Bank of India.

India has the option to negotiate with Washington issues related to Generalised System of Preferences (GSP) though the impact would be modest of withdrawing the concession given to Indian exports.

But India is not expected to take GSP-export issues to the World Trade Organization even if there is an option given the discriminatory approach by US Trade Representative (USTR), according to Indian media reports of 6-7 Mar 2019.

The best would be, as it is a practice, to talk it out during the 60-day window for US to withdraw the trade concessions under GSP.

The 60-day window for US to withdraw trade concessions, leaves room for the two countries’ trade representative to reach a compromise on the arrangement, said DBS Group Research Economist Radhika Rao in a report on 6 Mar 2019.

The GSP removal impact is going to be modest as the shipments to the US market is small, about 1-2% of the country’s overall exports.

On the question of likely impact, Rao pointed out that US accounted for 15.8% of India’s exports last year, with nominal exports at US$48 billion.

“India runs a persistent goods trade surplus with the US; averaged of US$20 billion in the past four years, alongside a smaller surplus under the services account,” Rao noted.

Under the GSP umbrella, cumulative imports of US$19 billion were shipped into the US in 2016. Of these, India was the top beneficiary at about US$6 billion.

Affected sectors include farm products, food and beverages, leather, textiles, metals and products, plastic, etc.

“Despite the product-spread, the impact in nominal terms is modest as GSP makes 10% of India’s exports to the US and a small 1-2% of overall India’s exports,” wrote Rao in the bank’s daily market report on 6 Mar  2019.

This implies that over 90% of India’s exports to the US faces normal tariffs, thus limiting the scope of any significant economic impact.

She also noted India’s Commerce Secretary remarks that despite exporting under the GSP umbrella, India had received GSP benefits of only worth US$190 million, the magnitude of which is reasonably modest.

With 60-day window for the trade concessions withdrawal changes to take effect, “this leaves room for the US-India trade representatives to get back to the table and reach a compromise on the arrangement, akin to what is underway with China,” said Rao.

She noted that trade negotiations have been ongoing since the US unilaterally imposed tariffs on steel and aluminium imports, to which India’s calls for exemption were not met.

This latest action is a part of the US’ broader push to correct its large trade deficits with key trading partners (particularly China) and improve market access for US-based companies, observed Rao.

“India is considering retaliatory tariffs, which was recently deferred to April 2019 as negotiations were ongoing.

“The second line of response might be to file a case with the World Trade Organization (WTO), deeming the withdrawal of GSP was violating the principle of non-discrimination,” Rao believes.

Plans to review India’s eligibility for GSP program began in April 2018.

These changes will be effective 60 days after notifications to Congress and the Indian government are sent, and further processes are completed.

Under the GSP program, select India’s exports enter the US duty-free. In return, India is required to meet few criteria; this included, respecting arbitral awards in favour of US citizens/companies, providing adequate, effective intellectual property protection, and providing the US with equitable and reasonable market access.

The US Trade Representative blamed India for resurrecting a wide array of trade barriers and tariffs that had hurt trade with the US.

President Donald Trump has recently called for a ‘reciprocal tax’ on purchases from India. Add to this, the US also cited petitions from its dairy and medical device industries, which had led to the initial review of the GSP benefits.

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