Now, Donald Trump trains trade gun on India

In a major setback to bilateral ties, the US on Tuesday put India on a 60-day notice for the removal of tariff privileges under the US Generalised System of Preferences (GSP) on exports of $5.6 billion.

US President Donald Trump notified the US Congress his "intent to terminate" trade benefits for India and Turkey under the GSP eligibility criteria, stating that New Delhi has failed to assure America of "equitable and reasonable" access to its markets.

Playing down the impact of US threat, Anup Wadhawan, commerce secretary, said the hit due to the rollback of GSP would be "moderate" at around $190 million.

"In April 2018, the US decided to review the GSP. Total GSP duty benefits was $190 million. The economic value of GSP benefits are very moderate. The US will terminate GSP in 60 days. Our relations remain strong with the US and discussions will go on," he said.

Currently, $5.6 billion of India's total exports of $48.6 billion to the US enjoys favourable tariffs under the GSP. The industries likely to be hit are jewellery, electric motors, textiles, motor vehicle parts, leather goods (excluding footwear) and others.

Trump has voiced displeasure over India's trade surplus with the US at around $22 billion and has been hankering to narrow it through punitive measures.

A statement issued by the Department of Commerce on Tuesday said, "India was able to offer a very meaningful way forward on almost all the US requests. In a few instances, specific US requests were not found reasonable and doable at this time by the departments concerned, in light of public welfare concerns reflective of India's developing country status and its national interest."

The government note said that "various initiatives" by them had already led to a substantial reduction in the US trade deficit with India over the last two years and is expected to fall further in coming years.

"The reduction is estimated to be over $4 billion in 2018, with further reduction expected in future years on account of factors like the growing demand for energy and civilian aircraft in India. This reduction has happened in the face of a rising overall US trade deficit, including with some other major economies. India is also a thriving market for US services and e-commerce companies like Amazon, Uber, Google and Facebook with billions of dollars of revenue," said the government release.

Ajay Sahai, director general and CEO, Federation of Indian Export Organisations (FIEO), said the tariff benefit from the US GSP - $190 million – was insignificant at 0.04% of total US exports.

He, however, called on the government to continue trade talks with the US. "I will prefer if we further engage with the US and try to explain our viewpoint on why we are not able to provide market access to some of the products demanded by the US. That should be the strategy. There are a couple of products where the GSP benefit is 4% or more. For those products, it may be little difficult to absorb the losses. By and large, the GSP losses on most of the products are between 1% and 2%. In those cases, the industry will be able to absorb the losses, but where it is significant the Indian government needs to provide some cushion to those industries to retain market share in the US."

Ganesh Kumar Gupta, president, FIEO, said despite GSP being non-reciprocal, the US has linked it with market access and tariff reduction which was "against its basic tenets".

The export lobby body maintained that taking back India's GSP benefits will impact the US's diversification strategy of replacing China as main supplier with other developing countries and would also hit it cost and price competitiveness adversely.

"India is predominantly exporting intermediate and semi-manufactured goods to US under the GSP, the same has helped in cost effectiveness and price competitiveness of US downstream industry. Therefore, the GSP withdrawal will also impact the competitiveness of many manufacturing sectors and will hit the consumers at the same time. The import price of most of the chemical products, which constituted a large chunk of India's exports, is expected to increase by about 5%," said the statement issued by the FIEO.

Gupta urged the government to provide fiscal assistance to exporters to absorb the hit from GSP withdrawal.

"India was getting tariff preference on 5,111 tariff lines out of 18,770 tariff lines in the US. However, on only 2,165 tariff lines, the tariff advantage was 4% or more. While we hope that the exporters would be able to absorb the duty loss where it is 2-3%, we need to provide fiscal support to those products where GSP tariff advantage was significant particularly in the labour-intensive sector," he said.

One of the points of difference with the US was market access to the Indian diary, where India has insisted on "certification requirement that the source animal had never been fed animal derived blood meal". India has conveyed that this requirement was "non-negotiable given the cultural and religious sentiment".

However, India has offered to make the dairy certification procedure simpler without diluting it.

Sahai said India would not budge on the issue. "India has not allowed imports of products from countries where animals are fed on a non-vegetarian diet. That is something which is non-negotiable."

In November 2018, the US had pulled back GSP benefits on 90 items. India was among the worst-hit countries as the move had affected 50 of its products exported to the US. The value of duty privileges scrapped was $75 million. It included certain musical instruments, leather, textiles, dairy and chemicals. India tends to be the most affected due to the reversal of duty privileges under the GSP as it is a major beneficiary of this programme.

TRADING FIRE

• $4 bn – trade deficit with US likely to narrow in 2018
   
• $48.6 bn – India’s total exports to the US
   
• 5,111 tariff lines – on which India was getting preference, out of the total 18,770
   
• 4% – advantage only on 2,165 tariff lines
   
• 90 items – US had pulled back GSP benefits in November 2018