USTR removes India from developing status
Recently, the U.S. removed more than a dozen countries, including India, from its list of countries that are classified as “developing” for trade purposes. These countries will now be classified instead as “developed” economies, thus stripping them of various trade benefits.
● The Office of the U.S. Trade Representative (USTR) is responsible for developing and coordinating U.S. international trade, commodity, and direct investment policy, and overseeing negotiations with other countries.
● USTR removed India, along with several other countries, from the list of beneficiaries of trade subsidy preference under the US countervailing duty (CVD) laws.
● CVDs are tariffs levied on imported goods to offset subsidies made to producers of these goods in the exporting country.
● The preferential treatment with respect to CVDs investigations falls under the US’ Generalized System of Preferences (GSP) scheme.
Why is India being stripped of this status?
⮚ 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.
⮚ The U.S. administration under President Trump has blamed fast-growing countries such as China and India of wrongly claiming trade benefits that are reserved only for the truly developing countries.
The current change in India’s status under the USTR’s classification has cast a shadow on India being able to restore preferential benefits under the Generalized System of Preference (GSP) as part of its trade talks with the US, as only developing countries are eligible for it.
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.
▪ CVD laws 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 countervailing duty, a form of import tax, to make the Indian goods more expensive in the US markets.
▪ Any move to end duty-free access for foreign goods into the U.S., which becomes more likely after the change in trade status, will increase the overall tax burden on goods crossing international borders. This will add further pressure on the global economy, which has already witnessed a slowdown this year.
The recent US President trip to India will strengthen the United States-India strategic partnership and acme the strong and enduring bonds between the American and Indian people.India wants restoration of benefits under the GSP and more access for its products in the US. Recently, India offered to scale back tariffs on American dairy and other products that are imported into India. This came after the U.S. complained about the restricted access that American companies have to developing countries like India. If such trade tactics manage to bring down trade barriers on both sides, it can benefit the global economy. But, with both the U.S. and its various warring trading partners looking to protect their domestic producers rather than consumers who benefit from lower tariffs, a general fall in tariffs across the board seems unlikely.
PEPPER IT WITH
FTA, Generalized System of Preferences, OECD, UNCTAD, WTO, SCM Agreement, De minimis standard.