Roughly over two months ago, on March 4,  the US President Donald Trump had notified Congress of his intention to terminate the Generalized System of Preferences (GSP) for two nations—India and Turkey.

That commenced a 60-day countdown period, granting the US President the liberty to initiate action against the two prominent Asian countries after May 3.

 

Just a year back, in April 2018, the US had started a review process of the Generalized System of Preferences program. This was triggered by the complaints of some US companies who criticised the non-tariff barriers imposed on their exports to India. The companies alleged that India had failed to provide any assurance of unhindered market access to their products in the Indian market. The Trump administration promptly jumped into the bandwagon, perceiving erroneously that Indian action was creating a negative impact on America’s market access. The US considers that it was offering equitable and reasonable access to its market while India perceived US rules as predatory.

 

The American move precipitated extensive discussions between the US and Indian officials to work out ways to enable India’s continuous presence in GSP framework. Modi administration had taken some pro-people initiatives to make medical expenses an affordable proposition for the masses by vastly reducing the market price of some life-saving medical devices. That made profiteering American companies complain. American dissatisfaction extended to dairy sector also.

 

Under GSP, India exported duty-free goods worth $5.7 billion to the US in 2017 including auto components, industrial valves and textile materials and $48 billion worth of goods in 2018 with a trade surplus of $21 billion. Perturbed America placed India on a watch list of the treasury department alleging currency manipulation. But India behaved with great restraint, not retaliating even when the US unilaterally increased duty on a range of Indian products. India comforted itself that the withdrawal of GSP will have a minimal effect on India’s exports and worked at addressing the issues the US had raised.

 

America now grapples with a gigantic issue: hammering out a trade deal with China. But the ongoing exercise on GSP has indeed opened a can of worms and a new front in the trade war by acting against India and Turkey.   

 

India right now is preoccupied with the general election continuing in seven phases from April 11 to May 19. GSP impact on India amounts to hardly $190 million per year but the announcement would have provided the opposition a handle to torment Modi. India’s economic growth has not created the jobs and exports have not grown as desired. As exports create jobs, opposition would call for a tougher stand on trade negotiations with other countries, including the US. Trump is also making trade negotiations a rallying point for American elections. These could generate a new round of tensions with key trading nations. Is the US considering revoking India’s Most Favoured Nation status? This could be American positioning to pressurize India for more access to US companies. Saddled with its own domestic concerns India can hardly afford to yield to US pressures.

 

By giving notice of its intent to terminate India from its GSP the US has fired the first salvo to put a lot of pressure on poll-bound India. The new Indian government will have to grapple with this problem. Things will roll fast after the election results on May 23 to take the bilateral talks forward for liberalization of economy with the US.

 

The India- US relationship has acquired salience over years but both sides need to work for a fair and equitable trade mechanism. As large countries imbued with strong democratic political systems, both are politically working closely together in many areas, but a lot of common grounds remain to build a future relationship on. The US must understand the political and economic compulsions of India to pursue higher growth rates for a vast populace.

 

After 2017, the US, Japan, India and Australia revived the Quadrilateral Security Dialogue. That makes the close economic relationships between these two important partners of the QUAD group a structural imperative. Countering the imperialistic designs of China in South China Sea is the bigger picture that must not be lost sight of in skirmishes for petty dollars.

 

Published On : 21-05-2019

 

Source : New Delhi Times