US ends preferential trade status for India

New Delhi/Washington: In a blow to India that will also be the new Narendra Modi government’s first major foreign policy challenge, US President Donald Trump has terminated India’s designation as a beneficiary developing nation from June 5, ending the country’s $5.6 billion trade concessions under the key Generalised System of Preference (GSP) programme after determining that India has not assured the US that it will provide “equitable and reasonable access” to its markets.

India swiftly termed the US move as “unfortunate”, with the commerce ministry saying that New Delhi had “offered resolution on significant US requests” but that “it is unfortunate that this did not find acceptance by the US”.

In a clear message, India said it will “uphold its national interest” with “significant development imperatives” and that this will “remain the guiding factor in the government’s approach”.

The GSP is the largest and oldest US trade preference programme designed to promote economic development by allowing duty-free entry for thousands of products from designated beneficiary countries. These are essentially “unilateral, non-reciprocal and non-discriminatory benefits extended by developed countries to developing countries”.

“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,” Mr Trump said in a proclamation on Friday, ignoring the plea made by several top American lawmakers.

The US move kicked up a political storm within day of the Modi Cabinet taking oath of office. The Congress said the US government’s decision to terminate special trade status for India will have adverse consequences on exports and described it as a “double whammy” for India which has also “succumbed to US pressure” of not buying crude oil from Iran.

“We urge upon Prime Minister Narendra Modi to make a comprehensive statement on the issue to the nation and place before the public a way forward to overcome this grave trade and economic crisis,” said Congress chief spokesperson Randeep Surjewala, adding that India had been enjoying GSP benefits for the past 44 years.

Though the issue is being dealt with by the commerce ministry, the US move nevertheless presents the first major challenge for new external affairs minister S. Jaishankar, who has earlier been an ambassador to the US and is known for his contributions to Indo-US ties.

India exported goods worth $5.6 billion under GSP last year, but “our total GSP benefits were to the tune of only $190 million”, a commerce ministry official was quoted as having said in March.

Under the GSP programme, nearly 2,000 products including auto components and textile materials can enter the US without duty if the beneficiary developing countries meet the eligibility criteria established by the US Congress.

India was the largest beneficiary of the programme in 2017 with $5.6 billion in exports to the US given duty-free status, according to a Congressional Research Service report issued in January.

In a statement issued in the US, Coalition for GSP executive director Dan Anthony said Mr Trump’s decision will cost American businesses over $300 million in additional tariffs every year.