The US closes the door on reinstating India's GSP benefits

The Trump administration has adopted punitive measures to weaken India's justification for barriers owing to its developing economy status.

Highlights:

• The Trump administration has levied steel and aluminium tariffs on India & revoked GSP benefits.

• India has been the biggest beneficiary of GSP, with over 12 per cent of Indian exports to the US coming under the programme.

• The USTR's termination of India's designation as a beneficiary “developing” country reflects a strategy to weaken India's justification for barriers owing to its developing economy status.

A day after Trump's visit dates were announced, the United States Trade Representative (USTR) released a notice on eliminating a list of countries from its methodology for countervailing duty (CVD) investigations. India was removed from the list of developing countries that “are exempt from investigations into whether they harm American industry with unfairly subsidised exports.”

The move came amidst US-India trade tensions reaching a crescendo. As US-India trade negotiations have stalled, the Trump administration has levied steel and aluminium tariffs on India, revoked India's benefits under the Generalised System of Preferences (GSP) programme, contemplated limiting Indians' H1-B visas quota to 15 per cent due to divergences on e-commerce policy, and raised the spectre of a Section 301 investigation into India's tariff/non-tariff barriers.

During the ongoing visit, the expectation for India had been to oversee partial/complete restoration of its GSP benefits. After the 2019 general elections in India, the Trump administration had ended India's status under the GSP. Until then, India had been the biggest beneficiary of the programme, with exports to the US accounting for “over a quarter of the goods that got duty-free access into the US in 2017.” Over 12 per cent (worth $5.58 billion) of all Indian exports to the US in 2017 had benefitted under the GSP scheme. However, with the aforementioned move to remove India from the CVD list, the US essentially closed the door on reinstating India's GSP benefits, since the same is a preferential arrangement only for developing countries.

The Trump administration's contention over India's developing economy status can be understood through another source of tension in ongoing trade talks. India has instituted price caps on the US' pharmaceutical imports, which led to the lowering of prices of coronary stents and knee implants by 85 per cent and 65 per cent respectively. India has justified the same as an attempt to prevent exorbitant pricing from affecting the Indian consumer - which mostly comprises of a middle-income base. In ensuring fair returns for US manufacturers, India has directed them to its large market, away from per-unit margin considerations. American negotiators, however, insist on a “trade margin” at the first point of sale, instead of landed cost.

For the US, India's reasoning sound much like China's when the latter acquired the US' MFN status via the Permanent Normal Trade Relations Act of 2000 by offering access to its large market. However, with China, America's experience of giving up unit margins has not been encouraging. Riding on its predatory practices, theft of intellectual property and state-driven market economics, China has now become a near-peer economic competitor to the US. Much of India's argument for price caps on pharmaceutical imports relies on its status as a developing country, i.e. “to maintain higher levels of protection as compared to the developed countries.” Thus, the USTR's review - and now the termination - of India's designation as a beneficiary “developing” country reflects a strategy to weaken India's justification for barriers owing to its developing economy status.

Kashish Parpiani is Research Fellow at the Observer Research Foundation.

Disclaimer: The views expressed in the article are the author's own.