NEW YORK – Despite the early bonhomie between President Donald Trump and Prime Minister Narendra Modi, there have been enough indicators in the last year or so, that all was not quite rosy between the two leaders; that they didn’t see eye-to-eye on some trade and tariffs issues.
There was much speculation last year in Indian media on whether Trump had actually rejected India’s invitation to be chief guest at its Republic Day parade, or the invitation was never formally extended. Bilateral issues apart – with the US coming down hard on Pakistan often, to the satisfaction of Indian officials, momentum in bilateral ties has lagged, too, in the wake of friction on the commerce front.
However, Trump’s surprising move today, on Monday, to end the Generalized System of Preferences (GSP) trade treatment for India that allows duty-free entry for up to $5.6 billion worth of its exports to the United States, has sent out a harsh message: play ball like the way we want, or play on your own. Like China has found to its discomfiture, and resultant economic woes.
Trump gave a window of two months for the deal to expire, which dates from 1976. India is the world’s largest beneficiary of the GSP.
“I am taking this step because, after intensive engagement between the United States and the government of India, I have determined that India has not assured the United States that it will provide equitable and reasonable access to the markets of India,” Trump told congressional leaders in a letter.
“India has implemented a wide array of trade barriers that create serious negative effects on United States commerce,” said the United States Trade Representative, in a statement. It estimates the United States ran a goods and services trade deficit of $27.3 billion with India in 2017.
“Despite intensive engagement, India has failed to take the necessary steps to meet the GSP criterion,” it added.
Of the 3,700 products covered under the GSP, India used the concession for just 1,784, India’s Commerce Secretary Anup Wadhawan said in New Delhi, reported Reuters.
The deal was more symbolic in nature, of US helping India as a developing nation, to a developed one. The GSP’s annual “actual benefit” to India is $190 million, said Indian officials.
According to a statement by India’s Ministry of Commerce & Industry, since the review initiated by the US in April 2018 on GSP benefits, India and US have been discussing various trade issues of bilateral interest for a suitable resolution on mutually acceptable terms.
A Times of India report said that at the heart of the dispute was US insistence that India remove the price caps on knee implants and stents, which New Delhi regulates as “essential medicine”, but is a money-spinner for western companies.
In return for the impasse over these medical devices, India agreed to more access for US farm products, among others.
“The US had initiated the review on the basis of representations by the US medical devices and dairy industries, but subsequently included numerous other issues on a self-initiated basis. These included issues related to market access for various agriculture and animal husbandry products, relaxation / easing of procedures related to issues like telecom testing / conformity assessment and tariff reduction on ICT products,” the statement from the ministry said.
The ministry statement made it clear that India was ready to address US concerns regarding medical devices in principle, by putting in place a suitable trade margin approach in a reasonable time frame to balance concerns about fair pricing for the consumers and adequate remuneration for the suppliers.
But it seems Trump finally ran out of patience with India not toeing his line of thought.
India has emphasized that because of enhanced purchase of US goods like oil and natural gas and coal the US trade deficit with India has substantially reduced in calendar years 2017 and 2018. The reduction is estimated to be over $4 billion in 2018, with further reduction expected in future years on account of factors like the growing demand for energy and civilian aircrafts in India, it said, in a statement.
After the expiration of the GSP, India’s farm, marine and handicraft products are among exports most likely to be hit, Ajay Sahai, the director general of the Federation of Indian Export Organisations, told Reuters.
Trade ties with the US has also suffered after India adopted new rules on e-commerce curbing how internet retail giants Amazon.com Inc. and Walmart Inc.-backed Flipkart do business. That followed a drive by New Delhi to force global card payments companies such as MasterCard Inc. and Visa Inc. to move their data to India and higher tariffs on electronic products and smartphones, reported Reuters.
For the Indian government, it’s the timing of Trump’s decision that would prove to be an embarrassment as well.
The government could well argue that the margin of profit through the GSP is small, and could be ironed out in the future. But the move comes at a time when India relied upon the US to support it whole heartedly, lead international pressure on Pakistan for its covert operations in cross-border terrorism.
With general elections around the corner, Modi and the Indian government, will, no doubt, play the issue down. They will also argue that India is not the only out of GSP favor with the US.
Politico reported the US has ended Turkey’s GSP benefits too, after the Trump administration determined that the country was no longer a developing country that qualified for the program.
Politico reported the move could inflame tensions with both governments. India had repeatedly delayed retaliatory countermeasures against US tariffs on steel and aluminum as the two governments attempted to ease trade frictions. In the likely event that the US would take action, New Delhi announced last week it would impose retaliation on April 1.
(Sujeet Rajan is Executive Editor, Parikh Worldwide Media. Email him: email@example.com Follow him on Twitter @SujeetRajan1)