On March 4, 2019, US President Donald Trump, in a letter to the US Congress, expressed his willingness to withdraw from India the Generalised System of Preferences (GSP), which allows India to export some types of goods at zero or very low tariffs. President Trump said, “I have determined that India has not assured the US that it will provide equitable and reasonable access to its markets. Accordingly, it is appropriate to terminate India’s designation as a beneficiary, developing country effective June 5, 2019.” Similarly, President Trump decided to withdraw this facility from Turkey, and the decision was implemented on May 17, 2019.
What is GSP?
The United States offers GSP benefits to many developing countries. It is worth noting that under this provision, many Indian goods were allowed to be imported into the US with zero or nominal tariffs. Though only $5.6 billion worth of exports from India are covered by GSP, it’s said that India was the biggest beneficiary of GSP. This facility was available for items such as textiles, leather goods, engineering goods and gems and jewellery.
India exported $54.5 billion worth of goods to the US in 2018, but the total value of exports affected by GSP withdrawal is hardly $5.6 billion. Significantly, the savings amounted to hardly $190 million of import tariffs. The US has been trying to discourage imports from India for some time by various means. The latest step is withdrawal of GSP.
India’s soft stand
While the US has been raising tariffs for nearly a year, India’s response has been more or less soft. It is notable that whenever a country raises tariffs on imports from another country, the affected country generally retaliates by raising tariffs on imports from the other country. But unfortunately, India has remained soft towards the US and despite having decided to raise tariffs, has been postponing the implementation time and again. This attitude of India has been encouraging the other country to become even more aggressive.
India’s latest postponement of retaliatory tariffs against the US was done on May 16, for one month, until June 2019. Perhaps the government of India believes that the US may rethink its decision to curb imports from India. The US has a deficit of hardly $21.3 billion with India, whereas with China it has nearly $566 billion of deficit. Despite this fact, the attitude of the US administration towards India raises doubts about Indo-US friendship.
Trump mocking India’s efforts at infrastructure development in Afghanistan while not being strict with Pakistan raises doubts about US intentions. Perhaps the US thinks that Pakistan may prove to be helpful in withdrawing US troops from Afghanistan. For obvious reasons Pakistan, which is going through a serious economic crisis, is enjoying indirect help from the US.
Why is the US annoyed?
It’s well known that the US always strives to serve the interests of its companies and accordingly pressures the governments of other countries. There are many US companies working in India whose activities are not in tune with Indian interests. Some time ago, the US pressed the Indian government to change its patent law and allow American companies to re-patent their medicines even after the expiry of the patent period. When the Indian government cracked down on the e-commerce company Amazon and strictly enforced its e-commerce policy, the US government demanded a change in this policy. This is amazing because President Trump himself is a strong critic of Amazon.
When the US trade deficit with China is 25 times higher than its trade deficit with India, it is surprising that it is pressing India while trying to forge a trade deal with China. The US wants India to reduce its import duty on information technology products. In February last year, India had raised the import duty on these products from 10 per cent to 20 per cent. The US will not get any advantage if India tweaks its tariffs, rather China will be a bigger beneficiary as Chinese mobile phones will start coming to India in more quantities than ever before. The Indian leadership needs to deal strictly with the US, because Washington’s attitude reflects bullying more than protection of its economic interests.
The US should not forget that India is important for its economic and strategic interests. The fast-developing Indian economy is good for the American economy. Oil and gas are a major component of US exports to India, valued at $4.5 billion, and likely to grow further. India will also be buying 300 Boeing aircraft from the US in the next seven years, at a total cost of $39 billion. Apart from this, a number of defence deals with the US are also in the pipeline. Therefore, in the coming years, the US deficit with India could turn into a surplus.
US must collaborate with India
The US must understand that while it is pressing India to protect its interests, India also needs to fulfil its needs. America can better protect its interests in collaboration with India. For the Indian government, protection and promotion of employment in India, and protection of public health and its industries is the first priority.
So whether it is a matter of tightening the screws on Amazon and Wal-Mart, or increasing import duties for the protection of India’s electronics and telecoms industry, the US needs to understand the concerns of India and change its attitude. If that does not happen, India will have to act to protect its interests. The wrong attitude of the US may prove more harmful to it.