Donald Trump acts tough on India; US to withdraw zero duty import benefit on 1,784 items

  • 06-Mar-2019
  • Donald Trump acts tough on India; US to withdraw zero duty import benefit on 1,784 items

In a move that analysts said went against the established tenets of multilateral trade, the United States has decided to withdraw duty benefits on annual exports worth $5.6 billion from India under the so-called Generalized System of Preferences (GSP) by May. Washington’s decision, based on its assumption that New Delhi has failed to assure America of “equitable and reasonable” market access, comes at a time when the two countries were close to an amicable trade deal that would have accommodated the principal interests of both sides.

Commerce secretary Anup Wadhawan and exporters discounted any major impact of the move, saying the total duty concession under the GSP was only about $190 million a year, and most of the key products, in any case, are already outside its ambit. However, given that Indian exports are struggling and the slow growth in global trade among other sticky issues like high logistical and labour costs are dampening prospects of a major revival in the near term, the US decision could not have come at a worse time for the country. US president Donald Trump has recently indicated his resolve to launch a trade offensive against India by calling it a high-tariff nation and talking of a “reciprocal tax”.

The US move could also harden New Delhi’s resolve to slap proposed retaliatory tariff worth $235 million against the Trump administration’s extra 25% levy on steel supplies.

The exports under the GSP account for roughly 11% of India’s total goods exports to the US.

Under the GSP, 1,784 products — ranging from certain engineering goods and organic chemicals to textiles — are exported from India to the US at zero duty. However, these products typically attract low duties there — for instance, the engineering goods and textiles covered under the GSP typically attract less than 3%. Nevertheless, some leather products, processed food items and handlooms could see some impact, which will impact small companies and individuals that produce them.

Ravi Sehgal, chairman of engineering goods exporters’ body EEPC India, said the cost of locally-produced engineering goods that enjoy GSP benefits are still 10% higher than imported ones. Also, while Indian competitiveness will erode by 2-3 percentage points vis-a-vis competitors like Vietnam, Malaysia and Thailand, exports are unlikely to suffer, given the quality of its products and ability to supply in large volumes.

Engineering goods make up for as much as a fourth of the total benefits under the GSP.

The immediate trigger for the withdrawal is said to be the tightening of India’s FDI guidelines on e-commerce, which are expected to hit Amazon and Walmart-backed Flipkart, and New Delhi’s drive to force global card payments companies such as Mastercard Inc and Visa Inc to move their data to India, apart from higher tariffs on electronic products and smartphones.

Gautam Nair, managing director at Matrix Clothing, one of the largest garment exporters, said the textiles and apparel sector won’t be affected, although few leather items may see some impact. As such, ready-made garments are outside the GSP and are subjected to 16-31% duty in the US, he added.

Ganesh Kumar Gupta, president of the Federation of Indian Export Organisations, said while exporters would be able to absorb the duty loss where it is 2-3%, the government needs to provide support to those products where GSP tariff advantage is significant, particularly in the labour-intensive sector, including processed food and leather products (other than footwear).

Stressing that India responded to the US requests on sticky issues positively, the commerce ministry said on Tuesday that New Delhi had proposed to replace the current price cap policy for coronary stents with a “suitable trade margin regime” to address American concerns. As for the US demand to scrap/cut tariff on ICT products, including mobile phones costing over Rs 10,000, New Delhi had conveyed to the US that any such across-the-board cut would help only third parties (like China and Korea) and was willing to lower duties on those products where it would benefit the US. India had also offered to simplify certain certification procedures for dairy imports from the US.

“Acceptability of US market access requests related to products like alfalfa hay, cherries and pork was conveyed…On telecom testing, India was willing to consider discussions for a Mutual Recognition Agreement,” the commerce ministry said.

For its part, India had asked the US to delink its demand for greater market access from New Delhi to the GSP and a waiver from the extra steel duty. New Delhi also wants the

Trump administration to recognise that India is the only large economy whose goods trade surplus with the US has been shrinking (unlike China’s). In fact, in 2018, the surplus shrank $4 billion from the previous year. Also, India will remain the world’s fastest-growing large economy in the coming years, generating opportunities for US businesses in sectors ranging from defence and retail to oil. 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.

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