The United States Trade Representative’s (USTR) office has classified India as a developed economy, ineligible for benefits given by Washington DC to developing countries. This is expected to stop all chances of India reclaiming its benefits under the US’ Generalized System of Preferences (GSP) scheme. The GSP is America’s oldest preferential trade scheme, which offered Indian exporters tariff-free access to the US until June, when all benefits were suspended. The USTR considers a country’s per capita gross national income (GNI) and share of world trade to designate its level of economic development.

 

What

  1. On the criteria of a developing country having less than 0.5 per cent share of global trade, India crossed the limit way back, according to the government’s estimate.
  2. As of 2017, India’s share in global trade was 2.1 per cent for exports and 2.6 per cent for imports
  3. The USTR has also argued that since India, along with nations like Argentina, Brazil, Indonesia, and South Africa, is part of the G20 bloc, they can be classified as being developed despite having a per capita GNI below $12,375, according to the World Bank data.
  4. While Commerce and Industry Minister Piyush Goyal has said India does not need development assistances like GSP hitherto provided by other nations and should be able to become competitive on its own, the issue has continued to be part of trade talks between India and the US. 
  5. On the other hand, traders have pointed out Indian exports remained under pressure due to increasing competition from low-cost rivals, and that surrendering GSP claims would mean handing away market share.
  6. In 2018, the US launched an eligibility review of India’s compliance with GSP market access criteria. It concluded that the country had implemented a wide array of trade barriers that create serious negative effects on commerce. 
  7. Subsequently, President Donald Trump signed an executive order in November that ended duty-free status for 50 items.
  8. India is the largest beneficiary nation under the GSP, with total benefits from tariff exemptions amounting to $260 million in 2018, according to the data from the USTR’s office.
  9. While goods worth $6.35 billion were covered under GSP in 2018-19, it was only a small piece of India's overall exports to the US in the same period, which stood at $51.4 billion.
  10. In respect of products having GSP benefits of 3 per cent or more, exporters had found it difficult to absorb the loss, the Federation of Indian Export Organisations (FIEO) has said. 
  11. Despite having a minimal impact on India's overall outbound trade with the US, specific exports from India in a diverse set of sectors such as jewellery, leather, pharmaceuticals, chemicals and agricultural products has faced higher costs and competition, FIEO said.
  12. India has maintained that GSP benefits were "unilateral and non-reciprocal in nature extended to developing countries", and that they couldn't be used for advancing Washington DC's trade interests and non-discriminatory benefits.

Flashback

  1. The Generalized System of Preferences (GSP), accorded by the US to imports from India since 1976, stood terminated as on June 5, 2019. 
  2. The government of India has indicated that the fiscal impact of this withdrawal, which would impact approximately $5.6 billion of India’s exports, is not significant. 
  3. Perhaps it is indeed 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.
  4. It is also of the impact that the move would have on exporters of several goods such as jewellery, building materials, solar cells and processed foods, which will face increases of upto 10% in the US tariffs, not all of which exporters can absorb by increasing the prices of products in their struggle to remain competitive. 
  5. Spillover effects in terms of downsizing in export firms, diversification, exploring newer markets and all the accompanying uncertainties therefore seem inevitable.