The US decision to withdraw its Generalised System of Preferences (GSP) — a scheme under which it confers duty-free access on 4,800 products from 131 poor and developing countries — for Indian products is bound to pinch Indian exporters of raw materials and intermediates in particular. While the Centre has sought to downplay the impact on the industries concerned, a number of them being MSMEs, the fact remains that the blow falls on exports worth $5.6 billion covering about 3,500 product lines, or 11-12 per cent of India’s total exports to the US. To be sure, the Trump administration has not sprung a surprise. In November last year, it had withdrawn GSP benefits on 50 items. These move seem retaliatory in nature, more a response to complaints of protectionism by US dairy and medical equipment industries than one that serves the interests of US business, which stands to benefit from cheap raw material supplies.
However, a larger design is at work. The US has been protesting India’s high tariffs for some time now, while making a broader pitch to the WTO that a clutch of emerging economies are no longer deserving of ‘special and differential treatment’ (S&DT) with regard to market access. A recent US submission to the WTO argues that the WTO “remains stuck in a simplistic and clearly outdated construct of ‘North-South’ division, developed and developing countries”...and that “This binary construct does not reflect the realities of 2019.” The paper notes that countries such as India, China, Colombia and Turkey have rapidly transformed since 1995. A joint paper by India and China counters this submission, listing the development deficit and levels of poverty as a case for continuing with S&DT. But the paradox is that emerging economies like India do pose a threat to specific sectors in the US.
If S&DT is scrapped, India loses not just GSP, but also its 10 per cent farm subsidy elbow-room (which will be reduced to 5 per cent). Its export subsidies have already become untenable in view of India crossing the per capita GNP threshold of $1,000. India needs to adopt a pragmatic approach to deal with this situation. It can contest the US move in the WTO. It is untenable for the US to isolate India and Turkey in its withdrawal of GSP. India can make a case for continuing with S&DT if it forms a grouping with the LDCs rather than China, which cannot be bracketed as a developing country any longer. Above all, it is important to recognise that China, unlike India today, was not browbeaten over tariffs in the 1990s when it was at a similar stage of development. This is because the US — besides not being led by a truculent President — was heavily invested in China’s economy. India needs to ensure a similar level of economic engagement with the rest of the world.