ABSTRACT
This report is based on the US president Donald Trump’s decision of terminating and withdrawing the preferential trade status for India under GSP. So the report will focus on understanding the aspects of this policy of United States by looking into the details and specification of the policy, the trade relations between the United States of America and India, its impact on the Indian economy as well as the economy of the United States and also what the Indian government can do about the decision of the US president of removing India from GSP.
Introduction
The United States of America’s President Donald Trump has dismissed India’s position under the GSP Trade programme as a beneficiary developing country. The reason for this termination was that the India has not given an assurance to the US that it will provide “equitable and reasonable access” to the Indian markets.
So with respect to his decision the US president Donald Trump announced that, “I have determined that India has not assured the US that it will provide equitable and reasonable access to its markets. Accordingly, it is appropriate to terminate India’s designation as a beneficiary developing country effective June 5, 2019,” Trump said in a proclamation on Friday ignoring the plea made by several top American lawmakers.
So before withdrawing the benefit from Indian, last month Turkey’s benefit was withdrawn. In the case of India they made a decision of waiting till the general elections get over before they terminated the preferential trade status for India under GSP. But the factor of surprise is that the US did not give a single chance to the new government to take any actions or decisions or frame policies in the favour of the US.
What is GSP?
The Generalized System of Preference (GSP) is the oldest and one of the most important and largest of the US trade preference programme. It allows the designated beneficiary countries to send thousands of duty free products so as to encourage the economic development.
This Generalized System of Preferences (GSP) and U.S. trade preference programme delivers prospects and opportunities to a number of the world’s poorest nations to make the correct use of their resources though trade and commerce. The solitary reason of doing this is to come out of poverty and have progress in the economy by the means of the trade in a country. By eradicating the duties on thousands of produces and goods, GPS aims at aiding the countries for their economic development. There are 120 designated countries under this Generalized System of Preference.
When was GSP introduced?
The Generalized System of Preference was established by means of the Trade Act of 1974. SO in the 1960’s in the United Nations Conference on Trade and Development (UNCTAD) there was an significant substance of dialogue which was the notion of tariff preferences for the newly developing countries. With reference from the sources of the U.S. Trade Representative, the Generalized System of Preference programme focuses on helping the beneficiary countries in increasing, developing and diversifying their trade with the US, thereby helping them to spur sustainable development. The US thought that there were certain benefits of GSP like it would create employment for tens of thousands of people in the US. The policy makers also believed that this policy will increase and boost competiveness among the American manufacturers. In accordance to the Trade Representative this GSP policy is extremely vital for the small businesses in the US.
General Benefits of GSP
GSP stimulates economic progress and development in the developing countries.
So through GSP the beneficiary countries get an opportunity to increase and broaden their horizon with respect to trade and therefore move ahead towards sustainable development. Additional and supplementary benefits are also provided for the products sent from the least developed countries, under this programme. Under this programme there is a list of eligible products for the duty free entry into the US when the products are imported from the beneficiary countries.
GSP upholds American principles, morals and beliefs.
Apart from promoting and increasing the prospects and chances in the developing nations, this GSP programme also aids the development in the beneficiary countries by providing worker rights to the citizens, in propagating the rule of law and moreover in putting into effect the intellectual property rights. The USTR conducts detailed and comprehensive evaluations and surveys in the beneficiary countries as a part of the GSP Annual Review.
GSP aids U.S. jobs and supports in keeping American companies in a competitive spirit.
Job opportunities under GSP are created by moving the imported products from the beneficiary countries from the docks to the US farmers, consumers and manufacturers. This practice creates job opportunities for thousands of people in the US. It also increases the spirit of competitiveness and also assists the small businesses thereby increasing the US trade.
GSP criteria
Approximately 2000 goods and products can enter the US duty free market from the beneficiary nations including auto components and textiles to meet the eligibility criteria set by the Congress under the GSP programme. The criteria for the Generalized System of Preference includes respecting and abiding by the arbitral awards in favour of the US corporation and citizens. It also includes a clause stating the abolition and combat of child labour and accepting and abiding by the internationally acknowledged worker rights It also includes rules that enforce us to provide effective and passable intellectual property protection. One of the most important criteria is that the beneficiary nation is supposed to provide the US with equitable and reasonable market access. Nations can correspondingly be progressed from the GSP programme depending on dynamics associated to economic growth and development.
Why is GSP vital for India?
The Indian export business may possibly not feel the tweak of the GSP elimination and termination for India by the US. So the loss and damage for the export industry aggregates up to approximately $190 million on exports of $5.6 billion being under the GSP category.
But particular segments, for instance precious stone and jewels, leather and processed foodstuffs will lose on the remunerations and profits of the programme. A manufacturer may perhaps be able to endure 2-3% of the damage and loss because of the transformation. So for example there will be severe losses like in the case of rice where the loses may increase or exceed over 10%.The propertied value of goods from India needs to be equivalent as it existed before the GSP was terminated. If this is not the case then the consumers of the Indian imported products in the US would descend and move towards the producers that enjoy the CSP privileges and who are therefore capable to offer the consumers a lower price. So understandably, it will be a difficult task to bring back a consumer that has gone to a competitor.
Petitions
The U.S. conducts annuals as well as bi-annual assessments and reviews of the Generalized System of Preference programme. In the last year the review and assessment of the programme took place in India. This review focused on meeting the GSP criterion that states that the Generalized System of Preference beneficiary country will provide equitable and reasonable access to its markets. There were two petitions by the Trade Representative that asserted that India did not meet the above mentioned criterion. One of the petitions was from the National Milk Producers Federation and the US Dairy Export Council. The second petition was from the Advanced Medical Technology Association. This petition was filed because India being secular as well as religiously diverse nation wanted dairy products to be certified that they were not derived from the animals that have been fed any kind of food that contained any kind of internal organs. This was done because these dairy products could be a very significant part of many religious practices of worship. The second petition of Advanced Medical Technology Association was there because in the recent times India has placed a cap on the rates of the medical technology for instance stents, which consequently impacted the US exports of such technological devices.
Consequences
India has been hit hard by the most recent decision of the US president Donald Trump as India was the largest beneficiary of the Generalized System of Preference programme. So the impact of the latest move by the Trump administration on the quantity and amount of India’s exports is unidentified yet. But yet the 50 products that are in the list of duty free products that has been terminated, reveals that the impact of this decision would be fundamentally seen on the small and medium size business and to be particular on the agriculture and handloom sector.
A number of the protuberant Indian goods that have been removed and terminated from the list of the duty-free provisions of the GSP take account of dried pigeon pea seed; areca nuts, fresh or dried, in shell; turpentine gum; mangoes, prepared or preserved by vinegar or acetic acid; sandstone, merely cut into blocks or slabs of a rectangular shape; tin chlorides; barium chlorides; salts and esters of tartaric acid, nesoi; and trim ethyl phosphite.
Full grain unsplit or grain split buffalo hide or skin; grain split whole buffalo leather, without hair on; whole buffalo skin leather; and full grain unsplit buffalo leather (not whole), have also been removed from the duty-free the GSP list.
Dyed,
plain weave certified hand-loomed fabrics of cotton, plain weave certified
hand-loomed fabrics of cotton, hand-loomed carpet and other textile floor
coverings, not of pile construction, woven, made up of man-made textile
materials have also been removed.
India can still export all these goods and products to the US but they
all these products will be subject to the generally acknowledged tariffs. The
eligibility review of India for the GSP was announced by the US in the month of
April. Wherein according to the US Trade Representative the total imports in
the US through GSP was $21.2 billion. Out of this $5.6 billion was from India
because it was the biggest beneficiary.
The Coalition for GSP executive director Dan Anthony said Trump’s decision will cost American businesses over USD 300 million in additional tariffs every year. “Without GSP benefits American small businesses face a new tax that will mean job losses, cancelled investments and cost increases for consumers.”
So by analyzing this we can see that this decision hasn’t proved the best for any country. As in it doesn’t seem like that there are any winners from this decision. This is because now the people of America who will import good will have to pay more money for it. Also some exporters from America will still have to go through the current market access barriers in India. India might possibly not have a very significant impact on the export industry especially to America because it only benefited about 190 million USD annually. .
Suggestions
One
of the major things that the Indian government do to reduce the consequences of
this decision is that the government can offer financial as well as fiscal aid
to the sectors that have been affected by this especially the small and medium
scale businesses. The government could refund the taxes collected for the goods
that are not under the GST. Helping these sectors and also protecting as well
as creating jobs will help to us to recover.
References
Measurement of Trade Concentration under the United States’ Generalized System of Preferences Scheme
Don P. Clark
The Journal of Developing Areas
Vol. 24, No. 2 (Jan., 1990), pp. 217-224
MFN Tariff Reductions and Developing Country Trade Benefits Under the GSP
R. E. Baldwin and T. Murray
The Economic Journal
Vol. 87, No. 345 (Mar., 1977), pp. 30-46
Macroeconomics 