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US to end India's preferential trade treatment under GSP programme

The United States has given India a 60-day withdrawal notice on the Generalized System of Preferences (GSP) benefits extended to $5.6 billion worth of Indian exports. As many as 1,900 Indian products from sectors such as chemicals and engineering get duty free access to the US market under the GSP programme.

Mar 5, 2019 15:14 IST
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US President Donald Trump informed the US Congress on March 4, 2019 that he intends to end India's preferential trade treatment under the Generalised System of Preferences (GSP) programme. The GSP programme allows $5.6 billion worth of Indian exports to enter the United States duty-free.

Explaining the reason behind withdrawing the duty benefits on Indian products, Trump stated in a letter to the Speaker of the US House of Representatives, Nancy Pelosi that India has failed to assure the United States that it would provide equitable and reasonable access to its markets in numerous sectors.

Trump stated that he 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.

When will the withdrawal of the programme come into effect?

According to US Trade Representative's Office, the removal of 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.

What does India primarily export to US?

India mainly exports raw materials and intermediate goods such as organic chemicals to the United States.

How many products get duty-free access?

As many as 1,900 Indian products from sectors such as chemicals and engineering get duty free access to the US market under the GSP programme, which was introduced in 1976.

How will it affect India?

According to Commerce Secretary Anup Wadhawan, India exports goods worth $5.6 billion under the GSP and the duty benefit is only $190 million annually.

Hence, he said that the US decision to withdraw duty benefits on Indian products under the GSP programme will not have a significant impact on the Indian exports to America.

Major setback for India-US trade ties?

Trump's decision to withdraw the preferential trade treatment could be seen as a major setback in India-US bilateral relationship, in particular in the arena of trade and economy.

India is the world's largest beneficiary of the GSP programme and ending its participation would be the strongest punitive action against India since Trump took office in 2017.

According to the US Trade Representative's Office, the US goods and services trade deficit with India was $27.3 billion in 2017.

However, the US demand for relaxation in norms for exports of medical devices and dairy products is non-negotiable to India.

Besides this, a major move that hurt US-India trade ties was India’s new e-commerce policy, which restricted the way the US-based e-commerce giants- Amazon and Walmart- do business in India. The new policy was unveiled on February 1, 2019.

In a separate announcement, Trump informed the US Congress of his intent to end the designation of Turkey as a beneficiary developing country under the GSP programme. The key reason behind the decision, according to Trump, is the vast growth seen in the economy of Turkey in the last four-and-a-half decades.

The US had designated Turkey as a GSP beneficiary developing country in 1975. However, an increase in the Gross National Income (GNI) per capita, declining poverty rates and export diversification by trading partner and by sector were evidence of Turkey's higher level of economic development, as per US Trade Representative's Office.

About GSP Programme

Under the Generalised System of Preferences programme, certain products are allowed to enter the US duty-free if the beneficiary developing countries meet the eligibility criteria established by the US Congress.

The eligibility criteria include respecting arbitral awards in favour of US citizens or corporations, combating child labour, respecting internationally recognised worker rights, providing adequate and effective intellectual property protection and providing the US with equitable and reasonable market access.

The selected beneficiary nations can be graduated from the GSP programme, depending on factors related to economic development.

Background

The Trump administration had initiated an eligibility review of India's compliance with the GSP market access criterion in April 2018. Since then, India and the US have been discussing various trade issues of bilateral interest for a suitable resolution on mutually acceptable terms.

The GSP benefits are envisaged as non-reciprocal and non-discriminatory benefits extended by developed countries to developing countries. In India's case, the GSP concessions extended by the US amounted to duty reduction of only USD 190 million per annum.

The US had initiated the review on the basis of representations by the US medical devices and dairy industries but subsequently included numerous other issues on a self-initiated basis. These included issues related to market access for various agriculture and animal husbandry products, relaxation of procedures related to issues like telecom testing, conformity assessment and tariff reduction on ICT products.  

The Department of Commerce engaged with various Government of India departments concerned with these issues, and India was able to offer a very meaningful way forward on almost all the US requests. However, in a few instances, specific US requests were not found reasonable and doable by the concerned departments, in light of public welfare concerns reflective of India's developing country status and its national interest.

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