The United States will terminate its GSP treatment for India from June 5. In this regard, the Indian government stated that the Indian side will safeguard national interests and will not sacrifice its own economic development in exchange for small trade preferences.
Analysts believe that the US move will not only undermine the Indian economy, but will also harm the interests of the United States, making bilateral relations at the beginning of the second term of the Modi government in India.
Economic and trade relations deteriorate
US President Trump issued a presidential announcement on May 31 stating that because India failed to ensure fair and reasonable market access to the United States, the US government will terminate its GSP treatment under the 1974 Trade Act.
The GSP refers to an international trading system in which developed countries unilaterally grant preferential tariff treatment to manufactured goods and semi-finished products imported from developing countries. It is a more preferential treatment for further tax reduction or full tax exemption based on the MFN rate. .
According to data from the US Trade Representative Office, as of 2017, about 5.6 billion U.S. dollars of Indian exports to the United States enjoy GSP treatment, and India is the biggest beneficiary of the system.
On June 3, Bloomberg quoted people familiar with the matter as saying that the US’s dissatisfaction with India, in addition to the “unfavorable treatment” of American companies, also had trade imbalances. Trump’s termination of GSP treatment in India is intended to force India to return to the negotiating table.
Dan Anthony, executive director of the GSP Alliance, said in a statement on the 3rd that the US government, despite the opposition of lawmakers and hundreds of American companies, ignored India’s willingness to negotiate market access for US print products. With such a decision, there is no winner in this decision.
The Secretary of the Federation of Indian Industry, Dilip Cheroy, pointed out that the United States has benefited a lot from the bilateral trade between India and the United States, and it is not necessary to terminate the preferential treatment of the India Press.
Richard Russell, a senior adviser at the Center for Strategic Studies and International Studies of the United States, recently wrote that the US-India economic and trade relationship is currently at an important crossroads, and trade disputes seem to be on the verge of escalation.
Affecting India-US relations
The newly re-elected Indian Prime Minister Modi was sworn in on May 30 to open his second prime minister"s term. The Indian media generally believe that the decision of the US government to terminate the preferential treatment of the press is a major challenge facing the establishment of the new Indian cabinet.
The Indian Ministry of Commerce and Industry issued a statement on June 1st saying that the Indian side has been committed to "seeking a condition acceptable to both sides in the course of bilateral trade negotiations between India and the United States, but it is regrettable that the United States ultimately did not accept our proposal." On the issue of trade, the Indian government, like other countries, "will maintain its national interests, and the Indian people also expect a better life." India will not sacrifice its own economic development in exchange for small trade preferences.
Bloomberg columnist Andy Mukherjee believes that India’s current unemployment rate is high and economic growth is declining. The US move will put pressure on the Indian economy.
However, Gupta, chairman of the Federation of Indian Export Organizations, believes that only $6.35 billion worth of India’s exports to the United States benefit from the GSP, and the total tariff reduction is about $260 million, so the United States cancels the GSP. Treatment has limited impact on India at the macroeconomic level.
According to data from the Office of the US Trade Representative, the United States imported goods from India totaling 54.4 billion U.S. dollars in 2018, and exported 33.1 billion U.S. dollars to India, with a trade deficit of 21.3 billion U.S. dollars.
Analysts pointed out that India had stopped buying oil from Iran under pressure from the United States. This time, the United States has been hampered by trade preferences, which will bring challenges to bilateral relations.
Mukherjee pointed out that the recent wave of "big sticks" in the United States forced the Indian government to abandon the purchase of Iranian crude oil, forcing India to reduce restrictions on US companies in the field of e-commerce, and exerting pressure on India on generic drugs. He believes that these actions are a warning issued by the Trump administration to India, indicating that the US hopes that India will make more efforts to prove that it is an ally of the United States.
Chenoy said that the decision of the United States to terminate the preferential treatment of the press will inevitably have a short-term impact on the trade between India and the United States. If this issue cannot be resolved amicably, it may affect the future direction of India-US relations.