india

Updated: Mar 05, 2019 11:41 IST

The Trump administration on Monday notified US congress of its intent to remove India from a list of beneficiary countries of a zero-import duty programme, called the Generalized System of Preference (GSP), for not granting American producers “reasonable access” to its markets.

India has been the top beneficiary of this programme that extends zero-tariff regime for some goods, not all, to 120 countries. It exported an estimated $5.6 billion worth of goods to the US under this scheme in 2017, more than 11% of the total value of it exports to the United States, $48.6 billion. That’s why it matters.

“I am providing notice of my intent to terminate the designation of India as a beneficiary developing country under the Generalized System of Preferences (GSP) program,” President Donald Trump wrote in a letter to the heads of the House of Representatives and the Senate.

The president added that he had “determined that India has not assured the United States that it will provide equitable and reasonable access to the markets of India”.

In New Delhi, India’s commerce secretary Anup Wadhawan said the US decision to withdraw India’s name from the GSP list won’t have any “significant impact” on the 5.6 billion dollar exports to the US. “India exports goods worth USD 5.6 billion under the GSP, and the duty benefit is only USD 190 million annually,” news agency PTI quoted Wadhawan as saying.

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Trump’s letter kicked off a 60-day notice period, which is essentially the time India has to try and reverse the decision. And the only way it can, according to people close to these matters, was for it to “capitulate” on all of US demands that had been under discussion for the last some months.

If India refuses to yield, hundreds of types of goods it exports to the United States under the GSP will now be subjected to rates that amount to “around” $190 million in import duty, according to people dealing with bilateral trade between the countries and the contentious and protracted negotiations underway for months.

The decision was along expected lines but New Delhi was both disappointed and irritated. “We had conceded most of their demands and had indicated our readiness to discuss the few remaining ones as well,” an official close to the negotiations said, adding, “but they seemed to be in the mood to go for all”.

US experts and observers of relations with Indian were disappointed as well, largely, as they saw it, because of the administration’s failure to see the trade issue in the context of its own national security strategy objectives for Asia, with threat from China as a shared objective.

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Milan Vaishnav, a South Asia expert at Carnegie, a leading think-tank, described the delisting as a “very shortsighted decision by the Trump administration”.

“Yes, the United States has economic grievances with India. And yes, India has instituted several new protectionist measures. In my view, however, the United States should be taking the long view. If it chooses not to, then I think the entire edifice of the Indo-Pacific strategy rings hollow.”

Richard Rossow of another leading think tank—the Center for International and Strategic Studies, agreed. Recounting the many Indian trade and tariff decisions, he said, Trump administration’s decision could “put our emerging strategic partnership at risk. I just hope the firewall between our economic ties and security ties holds firm. The “free and open Indo-Pacific” strategy has a big gap if “Indo” is missing”.

While broadly agreeing with them, an Asian diplomat who spoke on condition of anonymity, sought to tamp down fears of a strategic fissure. The administration also “kicked out” Turkey, a NATO ally, from the list but for altogether different reason, because it’s not longer a developing country — “Turkey has graduated from other developed countries’ GSP programs due to its increase in economic development or through reciprocal arrangements,” Trump wrote in a separate letter.

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The Trump administration had initiated a review of India’s continued eligibility for the programme in April 2018, essentially to use it extract concessions on a range of trade issues, from market access for American dairy products to tariff barriers to IT to pricing of medical devices.

Trump administration’s notification to congress had seemed imminent to observers but Indians had harbored hopes it would look at numbers before calling it in. US export to India have “risen by 30% in the last six months and could touch 40% next year”, said a person close to the negotiations.

India has been ramping up imports from the United States since Trump took office, to reduce its trade surplus with the United States, because Trump made it out to be as issue.