India no longer the United States’ preferred import partner; Trump takes away GSP benefits

By: |
Published: February 12, 2020 3:26:52 PM

The move comes ahead of US President Donald Trump’s visit to India to talk and potentially sign a trade deal.

India-US trade, India-US trade relations, India US trade preference, India removed from US trade beneficiariesEver since the possibility of change in GSP rules emerged, India has been in talks with the US to allow India exemption under the system. (Reuters)

The office of the United States Trade Representative (USTR) on Monday removed India, along with several other countries, from the list of beneficiaries of trade subsidy preference under the US counter-vailing duty (CVD) laws. The subsidy preference is a World Trade Organisation rule that allows self-declared developing countries to get preferential trade treatment in developed countries in order to provide a boost to the weaker economies.

This system is called the Generalised System of Preferences (GSP) and currently, 12 countries and the European Union are the providers of GSP. The move comes 6 months after US President Donald Trump first asked his administration to change the rules of the GSP to “safeguard” the interests of the US and to ensure that no country is damaging or harming the US using these incentives.

Why has India been removed from GSP?

The USTR said that its last update on rules regarding trade preference was released in 1998 and the criterion of eligible countries has now turned obsolete. The US considers the per capita Gross National Income (GNI) and the world trade share of a country to determine whether the country is developing and eligible for the subsidy or not.

The global trade share cut-off has been set by the US at 0.5%. In this regard, India crossed the threshold years ago, with India’s world trade share in 2017 was 2.1% for exports and 2.6% for imports. Due to this and the fact that India is a member of G-20, the US said that India will be considered as a developed country, even if it’s per capita GNI is below $12,375 or Rs 8.82 lakh.

How will India be affected by the move?

Under the GSP, Indian exporters could export their products to the US tariff-free. However, with the change of rules, Indian exporters will no longer get this benefit.

Ever since the possibility of change in GSP rules emerged, India has been in talks with the US to allow India exemption under the system. However, with the removal of India from the beneficiary list under the CVD laws, India’s chances of getting favourable results have nosedived.

Apart from that, the CVD laws also allow the US to hold an investigation into the trade policies of other countries to determine whether they are harming the US trade. With India no longer in the list of beneficiaries, the US can now hold an investigation. If the investigation finds that India’s policies allow exporters to sell their products in the US at a lower rate and consequently harm the domestic traders there, the US can impose counter-vailing duty, a form of import tax, to make the Indian goods more expensive in the US markets.

The move comes ahead of US President Donald Trump’s visit to India to talk and potentially sign a trade deal.

Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Next Stories
1IMF says China can top up stimulus if coronavirus outbreak hurts growth
2GST Annual Return: SC stays extension of filing date on Centre’s plea
3Post-RCEP Retreat: India likely to sign clutch of FTAs in FY21