US stops duty benefits for $5.6 billion of Indian exports
India says GSP withdrawal will not hit trade hard, may impose retaliatory duties on 29 US imports.
India said withdrawal of the Generalized System of Preferences (GSP) will not have a major impact on bilateral trade, citing the low level of exports under the concessional regime.
In another development, sources said India may allow proposed retaliatory duties on 29 US imports that have been deferred six times to kick in from April 1 to express its displeasure, given that the two countries were in talks to resolve trade issues. These levies had been proposed in response to the US raising duties on steel and aluminium imports from India and other nations last year.
The US announcement came hours after President Donald Trump said India was a “tariff king” and imposed “tremendously high” tariffs on American products such as Harley-Davidson motorcycles. The US cited India’s “failure to provide the US with assurances that it will provide equitable and reasonable access to its markets in numerous sectors,” while imposing higher duties.
India, which dismissed the “tariff king” barb, exported goods worth $5.6 billion under GSP to the US in FY18 as part of total exports of $49 billion to that country.
WITHDRAWAL TO KICK IN AFTER 60 DAYS
Preferential tariffs under GSP range from 1% to 6% and the total benefit under the scheme was about $190 million.
“The GSP benefits in absolute sense and a percentage of trade involved are very minimal and moderate,” said commerce secretary Anup Wadhawan. The benefits will be discontinued after 60 days once approved by the US Congress and signed by the president.
Wadhawan said the US had decided to terminate the GSP benefits despite India working on an “extensive and reasonable” trade package. Later on Tuesday, Wadhawan and principal secretary to the prime minister, Nripendra Misra, met finance minister Arun Jaitley. Details of the meeting were not available.
The benefit waiver withdrawal could also impact the substantive trade package that India and the US were working on. “That package is now off the shelf since the GSP review was triggered. But there is still a period of 60 days,” said an external affairs ministry official.
GSP provides for non-reciprocal and non-discriminatory benefits extended by developed countries to developing ones. India is the largest beneficiary of the scheme under which 1,700 products out of 3,700 products are covered.
The US had decided to review low or zero tariff imports from India last April following representations by its medical device and dairy industries “but subsequently included numerous other issues on a self-initiated basis,” India said in a statement.
Washington had earlier withdrawn duty benefits worth $75 million from Indian exports of certain musical instruments, leather, textiles, dairy and chemicals in November, based on import ceilings in the scheme to limit duty-free access.
India said it was able to offer a “very meaningful way forward” on the issue of market access for various agriculture and animal husbandry products, relaxation or easing of procedures related to issues like telecom testing, besides conformity assessment and tariff reduction on information and communications technology (ICT) products.
“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,” India’s commerce department said.
India has explained to the US several times that unconditional access to the dairy market is not feasible on religious grounds but did offer simplified dairy certification procedures to make it less time consuming.
US exports need to be certified that dairy products are derived from animals that have never consumed any feed containing internal organs, blood meal or tissues of ruminant origin, owing to matters of faith. That is non-negotiable, India has told the US.
While New Delhi conveyed the acceptability of US market-access requests related to products like alfalfa hay, cherries and pork, it stated its willingness to cut duties on ICT products on specific items in which there is a clear US interest, as any reduction would almost entirely benefit third countries especially China.
On telecom testing, India was willing to consider discussions for a mutual recognition agreement.
Ganesh Kumar Gupta, president, Federation of Indian Export Organisations, said the withdrawal will have a marginal impact as GSP tariff advantage of $190 million was less than 0.4% of India’s exports. “India is predominantly exporting intermediate and semi-manufactured goods to US under the GSP…the GSP withdrawal will impact the competitiveness of many manufacturing sectors and hit consumers at the same time,” he said.
The import price of most of the chemicals products, which constituted a large chunk of India’s exports, is expected to increase by about 5%. The withdrawal of GSP benefit will also hit the import diversification strategy of US where it is keen to replace China as the main supplier to other developing countries.
TARIFFS AND TRADE DEFICIT
While Trump has repeatedly complained about high tariffs, the government said it “is pertinent that India’s tariffs are within its bound rates under WTO commitments, and are on the average well below these bound rates.”
Bound rates are ceilings on tariffs that countries commit to at the World Trade Organization (WTO). India’s trade weighted average tariffs are at 7.6%, which is comparable with the most open developing economies and some developed ones.
“On developmental considerations, there may be a few tariff peaks, which is true for almost all economies,” the commerce department said.
India’s trade surplus with the US was $21.27 billion in FY18. In the April-November period of the current financial year, this gap was $10.5 billion in India’s favour.
However, due to India’s higher energy purchases from the US, the trade deficit shrunk substantially in calendar years 2017 and 2018. The reduction is estimated to be over $4 billion in 2018, with a further drop expected in future on account of growing demand for energy and civilian aircraft in India.
India is also a thriving market for US services and ecommerce companies such as Amazon, Uber, Google and Facebook, with billions of dollars in revenue, India said. However, rules on overseas investment in ecommerce and demands for data localisation may have queered the pitch.