The Generalized System of Preferences (GSP), as was being accorded by the US to imports from India since 1976, stood terminated as on June 5, 2019. India has indicated that the fiscal impact of this withdrawal—$5.6 billion of India’s exports—is not significant. Perhaps it is not when seen against the overall exports to the US valued at $230 billion. But the issue is not one of mere numbers, but one of legal principles as the systemic impact of US’s brazen unilateral actions. It is also one of the impact this move would have on exporters of several goods such as jewellery, building materials, solar cells and processed foods, which will face increase of up to 10% in the US tariffs, not all of which exporters can absorb by increasing prices of products in their struggle to remain competitive. Spillover effects in terms of downsizing in export firms, diversification, exploring newer markets, and all the accompanying uncertainties seems inevitable.
The law behind GSP: There is no right or entitlement that India or any other developing country has to GSP benefits from any developed country. GSP is a voluntary exercise of preferential market access that developed countries have the discretion to provide. However, the laws of the WTO provide very clear legal that a country that chooses to administer GSP, needs to adhere to. This includes the legal requirement that GSP shall be available for all developing countries on a non-discriminatory basis, and they need to be accorded on a non-reciprocal basis, i.e. such preferences cannot be given or restricted on the ground of equivalence of some benefit from a developing country.
The US has unabashedly confirmed that GSP benefits to India have been terminated solely on account of its unilateral assessment that India does not provide “equitable and reasonable market access” to it. This is an admitted violation of the mandate that GSP needs be based on the principle of “non-reciprocity”. The object of US’s trade concerns against India include requirements under Indian law for certification of dairy products, norms on pricing for medical devices, and India’s laws on patenting which apply, in the view of the US, strict criteria for grant of patents for products and also allow for compulsory licensing. Each of these is a legitimate exercise of sovereign legislative and policy choices by India. The US has expressed concerns on imposition of high tariffs by India in sectors including automobile, textiles, pharma and distilled spirits, which, again, are all within the realm of India’s WTO’s commitments.
In other words, India’s actions are all WTO-consistent domestic policy actions. But the US perceives these as limiting its market access, and instead of playing by multilateral rules, which would require trade negotiations on a reciprocal basis, it is resorting to the one tool that it is mandated to provide on non-reciprocal basis, i.e. GSP benefits.
Beyond playing by the rules: The US action is an extension of its recent approach of unilateral actions and strong-arm tactics to extract concessions. In a measured response, India has indicated that, like the US, it too believes in maintaining its national interest and addressing development imperatives. It has indicated the hope of arriving at a mutual resolution of the issues. While amicable solutions are the desirable objective in international relations, the approach with the US cannot be pegged on this expectation alone. In fact, there is no better example than the US itself that has used a combined strategy of bilateral dialogue, coupled with unilateral action, and most interestingly recourse to the beleaguered WTO’s dispute settlement system.
It’s the second time the US has hit India with its unilateral measures. First was on June 1, 2018, when the US imposed tariffs of 25% on steel and 10% on aluminium imported into the US. India has initiated a WTO dispute against this, as have several other WTO members. The EU and China also imposed retaliatory tariffs on certain imports from the US, against which the US initiated WTO disputes. While India announced retaliatory tariffs against the US several months back, it has been deferring the imposition of such tariffs.
It is important for India to raise a challenge against US’s GSP termination before the WTO. There are three reasons for this: (1) India is on a strong legal footing with regard to such a challenge; (2) the GSP issue is one of systemic significance within the framework of multilateral trade rules, and one country cannot be allowed to derail the fundamental planks on which it stands; and (3) contesting a country’s action through dispute settlement, and simultaneously holding bilateral negotiations, are not antithetical to each other, and can help a country leverage its advantages better.
The author is partner, Clarus Law Associates, New Delhi