These sectors will hurt the most from US withdrawing trade benefits to India
- The United States is removing India from the
Generalised System of preferences(GSP) list that recuses certain Indian exports from import duties.
- Without trade benefits, India’s petrochemical industry with exports like organic chemicals and the automobile industry that largely exports vehicle parts, will bear the brunt of the proclamation.
- India is still optimistic that the situation is only temporary and will soon be resolved.
The proclamation published by the White House will come into effect on June 5 and the decision will have a heavy bearing on many industries in India who were thus far sheltered by the Generalised System of Preferences (GSP).
Being on the GSP, allows 3,000 products to enter the US market duty-free for countries who have been designated as beneficiaries of the US trade preference programme.
India’s Commerce Ministry, on the other hand, is optimistic that both nations can work together to resolve any issues in a ‘mutually beneficial manner’.
In any relationship, in particular in the area of economic ties, there are ongoing issues which get resolved mutually from time to time.
Stones, bones and metal cones
The largest beneficiary of GSP’s exemptions was the petrochemical sector exporting organic chemicals, which is a raw material. Other primary sector industries that will have the bear the impact of customs duties are stone, sand, cement, wood, glass and plastic.
Other exports, like vehicle parts and furniture, fall into the intermediary category.
In both cases, shelling out import duties will increase the price of the products in the US market undercutting their competitiveness. So it’s not just that they will have to pay more in order to access the US market, but might also see falling demand.
India should be a little more worried than the US
In 2018, the GSP was responsible for exempting more than $6 billion worth of goods from import duties according to the Congressional Research Service (CRS). In 2017, GSP waived off customs for $5.6 billion worth of exports from India on 1,937 products.
India, as part of our bilateral trade discussions, offered resolution on significant U.S. requests in an effort to find a mutually acceptable way forward. It is unfortunate that this did not find acceptance by the U.S.
The US is India’s top trading partner accounting for 16% of India’s total exports. India, on the other hand, only accounts for 2.1% of US imports.
The stark difference paints a worrisome picture where the absence of the GSP will have a greater impact on Indian industries than companies in the US.
CRS notes that the Trump administration view bilateral trade balances as an ‘indicator’ of the health of any trading relationship.
Since there’s a trade deficit between US and India, Trump has criticised the South Asian country for a wide range of ‘unfair’ trading practices — his personal pet peeve being the high customs duty imposed on the import of Harley Davidson motorcycles.
India, on the other hand, points out that while there is a trade deficit between the two countries, it reduced considerably in 2018.