GSP withdrawal will hurt US more: Experts
Overall impact of US move expected to be minimal on domestic industry
Cutting off duty-free access to Indian products will hurt the domestic industry in the US, which depends on cheaper imported material and goods, said exporters on Tuesday. They added while loss of benefits under the Generalized System of Preferences (GSP) will squeeze margins and compromise competitiveness, the overall impact will be minimal.
“India’s exports to the US stood at $50.57 billion in 2017, with a GSP tariff advantage of only $190 million. This is less than 0.4 per cent of our exports. Naturally, its withdrawal will have a marginal impact,” said Ganesh Kumar Gupta, president of the Federation of Indian Export Organisations (FIEO).
In 2017-18, exports to the US stood at $47.87 billion, more than a 13 per cent rise over the previous year. It is expected to remain unaffected even if the GSP is removed, said senior commerce department officials, citing in-house research.
Late on Monday, US President Donald Trump had informed the Congress that he intended to end the preferential treatment to India and Turkey under the GSP, adding that New Delhi had not provided the US “equitable and reasonable” access to its markets. This sparked fears of a major setback to bilateral trade ties.
Gupta on Tuesday said India mostly exported intermediate and semi-manufactured goods to the US under the GSP. This helped cost effectiveness and price competitiveness of the US downstream industry. So, GSP withdrawal will also affect the competitiveness of the manufacturing sector. It would affect customers as well.
The import price of most chemicals products, which constituted a large chunk of India’s exports, is expected to increase by about 5 per cent. The withdrawal of GSP benefit will also hit the import-diversification strategy of the US, where it is keen to replace China as the main supplier to other developing countries, according to the FIEO.
There are about 3,700 kinds of items on the list of goods eligible to receive GSP benefits. Of this, India has managed to export only 1,900 kinds of items.
“Since the items are spread across 13 sectors and the gamut of overall trade is so large, we expect little impact,” a senior functionary of the Engineering Export Promotion Council said.
However, worries remain about loss of competitive advantage over others, such as Bangladesh, Malaysia and Vietnam.
“I am sure the government will take appropriate action and there will be dialogue between the two governments to make sure that this (GSP) is not withdrawn in case of India,” said Federation of Indian Chambers of Commerce & Industry President Sandip Somany.
Irksome policy
However, the policy implications of a major trade partner making a unilateral move like this have irked traders and experts alike. The basic tenets of the GSP dictate that it is provided on a non-reciprocal basis, but the Trump administration has linked it with market access and tariff reduction, issues that are perpetually under discussion.
“India is well within its rights to lodge a complaint at the World Trade Organization (WTO). It has already been established earlier that GSP benefits cannot be held ransom and retaliatory demands made. India had won a case at the multilateral platform after the European Union initiated a similar policy,” trade expert Abhijit Das, head of the Centre for WTO Studies, said.