US plan to remove preferential trade status won't really hurt India; to impact duty reduction worth $190 million

Even as the US has decided to withdraw tariff concessions offered to $5.6 billion worth of Indian exports through its Generalized System of Preferences (GSP) programme, Union Commerce Ministry stated that the concessions only amounted to a duty reduction of $190 million, a year.

In a press conference, Anup Wadhawan, Secretary, Commerce, said that the US decision has come despite the best efforts of India for a meaningful negotiation.

"The US had initiated the review on the basis of representations by the US medical devices and dairy industries, but subsequently included numerous other issues on a self-initiated basis. These included issues related to market access for various agriculture and animal husbandry products, relaxation/easing of procedures related to issues like telecom testing/conformity assessment and tariff reduction on ICT products. The Department of Commerce engaged with various Government of India departments concerned with these issues, and India was able to offer a very meaningful way forward on almost all the US requests," a ministry statement said.

Even on the basic complaints that triggered the review-that of medical devices and dairy products-India had agreed to take a balanced approach.

"India was ready to address US concerns regarding medical devices in principle, by putting in place a suitable trade margin approach in a reasonable time frame to balance concerns about fair pricing for the consumers and adequate remuneration for the suppliers. On the issue of dairy market access, India has clarified that while our certification requirement, that the source animal had never been fed animal derived blood meal, is non-negotiable given the cultural and religious sentiment, the requested simplified dairy certification procedure, without diluting this requirement, could be considered," Wadhawan points out. The Commerce ministry also said that it had conveyed its willingness to provide market access to products like cherries and pork originating from the US. On reduction of our IT duties, India maintained that its duties are moderate and not import stopping and agreed to extend duty concessions on specific items in which there is a clear US interest. The country was also willing to consider discussions for a Mutual Recognition Agreement on telecom testing.  

"India was agreeable to a very meaningful mutually acceptable package on the above lines to be agreed to at this time, while keeping remaining issues under discussion in the future," the ministry statement said.   

Meanwhile, the United States Trade Representative (USTR) said that "India's termination from GSP follows its failure to provide the United States with assurances that it will provide equitable and reasonable access to its markets in numerous sectors". The withdrawal of benefits will happen after a two month notice period.

In its submission to USTR last year, the Federation of Indian Export Organisations (FIEO) had said that the GSP has over the years helped India to grow its US exports to $48.63 billion in 2017. India was also the biggest beneficiary of GSP with total GSP imports of $5.6 billion that year. However, it noted that there has been only moderate increase in imports under GSP from India by $1.15 billion 2012-2017 with the share of GSP imports in the total imports from India coming down from 12.94 per cent in 2012 to 11.51 per cent in 2017. FIEO wanted US to continue the concessions to India as the scheme helped the US producers to import raw materials, components, parts, machineries and equipments under GSP thus cutting their cost of production to become competitive both at the domestic turf as well as in exports. A quarter of GSP imports being consumer goods also benefitted consumers with lower prices in the US, it pointed out.

While the revenue impact of US deciding to end the concessions will not be significant, it will certainly increase the cost of local manufacturing that depended on cheap raw material import from India.  

Also read: US President Donald Trump says he plans to end India's preferential trade treatment