Under Trump’s administration, The United States Trade Representative’s (USTR’s) office has declared India as a developed economy.
The Trump administration is changing a key exception to America’s trade-remedy laws to making it easier for the U.S. to penalize about two dozen ‘so-called developing countries’ including China, India and South Africa.
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What is the Fuss all About?
On February 10, 2020 U.S. removed India from among many countries from its list of developing countries that are exempt from investigations into whether they harm American industry with unjust subsidised exports.
The U.S. eliminated its special preferences for a list of self-declared developing countries that includes: Albania; Argentina; Armenia; Brazil; Bulgaria; China; Colombia; Costa Rica; Georgia; Hong Kong; India; Indonesia; Kazakhstan; the Kyrgyz Republic; Malaysia; Moldova; Montenegro; North Macedonia; Romania; Singapore; South Africa; South Korea; Thailand; Ukraine; and Vietnam.
The GSP is America’s oldest preferential trade scheme, which offered Indian exporters tariff-free access. This move is expected to stop all chances of India reclaiming its benefits under the US’ Generalized System of Preferences (GSP) scheme. According to the data from the USTR’s office, India is the largest beneficiary nation under the GSP, with total benefits from tariff exemptions amounting to $260 million in 2018.
According to the government’s estimate, on the criteria of a developing country having less than 0.5 per cent share of global trade, India crossed the limit a few years back. As of 2017, India’s share in global trade was 2.1% for exports and 2.6% for imports.
According to World Bank Data, The US removed India and many other nations from the list on account of it being a G-20 member as they can be classified as being developed ignoring the fact that their per capita GNI below $12,375.
Bad News for Indian Exports?
In 2018, President Donald Trump signed an executive order in November that ended duty-free status for 50 items on the grounds of a wide array of trade barriers that create serious negative effects on commerce.
The move has jeopardized the GSP benefits under the trade deal US and India are negotiating. A Delhi-based Trade Expert said, “ According to this notice, India is no longer a developing country and its hopes of getting GSP may not materialise as it does not qualify to get the benefits.” While goods worth $6.35 billion were covered under GSP in 2018-19 was just a small chunk. India’s overall exports to the US in the same period, stood at $51.4 billion.
The average duty concession resulting on account of GSP was almost $240 million in 2018. The two sides are likely to announce a trade deal during Trump’s visit to India on February 24-25, 2020.
The Commerce and Industry Minister Piyush Goyal has said, “ India does not need development assistance like GSP hitherto provided by other nations and should be able to become competitive on its own, the issue has continued to be part of trade talks between India and the US.”
Meanwhile, the traders have pointed out Indian export has remained under pressure due to increasing competition from low-cost rivals. The surrender to the GSP claims would mean handing away market share.
The Federation of Indian Export Organisations (FIEO) has said, “In respect of products having GSP benefits of 3 per cent or more, exporters had found it difficult to absorb the loss. Despite having a minimal impact on India’s overall outbound trade with the US, specific exports from India in a diverse set of sectors such as jewellery, leather, pharmaceuticals, chemicals and agricultural products has faced higher costs and competition.”
The move also signifies and reflects Trump’s frustration that large economies like China and India are allowed to receive preferential trade benefits as developing nations at the World Trade Organization.