US to terminate sops on Indian exports: Markets are key and strategic to businesses on both sides, inevitable to reach an understanding

As the United States President Donald Trump announced his intention to bring to an end the preferential trade status enjoyed by India in relation to duty-free exports from India to the United States (US), it is necessary to understand what this implies for India. The Trump administration has been reviewing bilateral trade balance between US and India and has been pushing India for measures to correct the US trade deficit with India. The 2017 figures peg the deficit at $27 billion in trade relating to goods and services. India has been enjoying certain duty-free imports under a program called the Generalised System of Preference (GSP) of the US meant for supporting the economic development of developing countries eligible under the program. Year 2017 figures peg the volume of imports into the US from India at $5.6 billion, approximately 12 percent of all imports under the GSP programme. The GSP program further requires developing countries benefiting from this duty-free import regime to comply with certain ‘market access’ requirements. The US has been hammering that India has failed to meet these market access requirements and hence intends to pull the plug on duty-free imports from India under the GSP programme. The medical and dairy industries complaint against India for failure by India to provide equitable and reasonable access to its markets triggered the review of the GSP programme benefits to India by the US. [caption id=“attachment_3758659” align=“alignleft” width=“380”]  Narendra Modi, Donald Trump. File pic. AP[/caption] What does the loss of preferential trade status mean for India and the United States and where does India stand if it gives into the demands of US? What started as a market access issue concerning medical devices and dairy products sectors was subsequently expanded by the US to include market access for animal husbandry products, agriculture products, information and tariff reductions on communications technology products and reworking testing and conformity assessment norms by India for products from the information and communications technology space, to name a few. On the medical industries demands, India seeks an appropriate balance between consumer interest on fair pricing and suppliers interests on adequate margins. This means that the balanced approach advocated by India is seen as falling short of the ‘equitable and reasonable access’ definition of the US. On the dairy industry denial of market access allegations, India offers a simplified but undiluted certification procedure maintaining that the requirement that the animal derived blood has not been fed to the source animal, is non-negotiable. Diluting some of these requirements runs the risks of hurting religious and cultural sentiments of people and is therefore not an option till there is no other option. While according equal treatment on testing and conformity assessment norms for products from the information and communications technology space through a mutual recognition agreement is a workable solution from the Indian standpoint, India has offered duty concessions only on information and communications technology products having a clear US interest maintain that the tariffs are already moderate and therefore cannot be tinkered with across the board. The US on its part stands to deny manufacturers based in US of duty-free imports of raw materials, parts, equipments, machineries and components under the GSP programme. This would potentially lead to such products manufactured in the US becoming uncompetitive in the market place owing to increase in cost of production. The impact could be felt in both domestic sales within the US well as exports from US. This would also affect the consumers in the US who may end up paying more for the same products now under the Trump Administration. The revenue implication for the US is not expected to be significant for them and for India the duty benefit lost on account of loss of preferential trade status with the US is about $190 million a year, again not a significant figure particularly pegged against the implications of giving into equitable and reasonable market access demands of the US to continue to be eligible for duty-free exports to the US under the GSP programme. The takeaway for both, US and India, is to continue to work towards expanding and balancing their partnership in trade and economic space with focus on addressing issues of interest to both, improved market access for both, besides facilitating trade. Both markets are key and strategic to businesses on both sides, which makes it inevitable to reach an understanding in the interests of consumers and businesses in both jurisdictions, sooner than later. (Kumar is founder & managing partner of Hammurabi & Solomon partners and an expert with the UNESCO Inclusive Policy Lab)