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India Downplays Impact of US Plans to End Special Trade Treatment

FILE - A mobile crane carries a container at Thar Dry Port in Sanand in the western state of Gujarat, India, Feb. 13, 2017.

India has downplayed the impact of U.S. plans to end New Delhi's preferential trade status that allows duty free access to products worth $ 5.6 billion.

Saying that India has not assured the United States that it will provide “equitable and reasonable access” to its markets, U.S. President Donald Trump has directed the U.S. Trade Representative’s office to remove India from a program that grants it preferential trade treatment.

In 2017, India was the biggest beneficiary of the Generalized System of Preferences (GSP), which lowers duties on exports from about 120 developing countries.

While the preferential tariffs give India duty free access to exports worth $5.6 billion, Indian commerce secretary Anup Wadhawan told reporters in New Delhi that the actual benefits add upto $190 million. He called them “minimal and moderate.”

He said that India has no plans to impose retaliatory tariffs on U.S. goods.

Despite their fast-growing political and security ties, trade tensions have been brewing between the two countries over the past year as American businesses complain of protectionist hurdles in one of the world’s fastest growing markets.

India, "has implemented a wide array of trade barriers that create serious negative effects on United States commerce," a statement from the U.S. Trade Representative office said.

President Trump has called India a “high tariff” country and repeatedly complained of high levies imposed by India on exports such as imported whiskey and Harley-Davidson motorcycles.

Indian officials refute that. “Our tariffs are very comparable to the more liberal developing economies, they are comparable to and even developed economies,” Wadhawan told reporters. “We have some tariff peaks. So you can't pick up one or two items and believe that our entire tariff structure is high.”

The U.S. Trade Representative’s Office has said that India’s removal from the GSP would not take effect for at least 60 days.

U.S. Trade Representative Robert Lighthizer speaks at a business conference at the U.S. Chamber of Commerce in Washington, May 1, 2018.
U.S. Trade Representative Robert Lighthizer speaks at a business conference at the U.S. Chamber of Commerce in Washington, May 1, 2018.

Indian exports that enjoyed preferential tariffs include automobile parts, chemicals, precious metal jewelry and certain raw materials.

Trade experts in New Delhi agree that the overall impact of the U.S. withdrawal of preferential tariffs is not significant, but warn that much of the hit will be taken by sectors that create employment in a country that desperately needs more jobs.

“The products where the GSP impact is more are the labor intensive sectors such as handicrafts, agriculture and marine products,” according to Ajai Sahai, the head of the Federation of Indian Export Organizations. He points out that it comes at a time when Indian exports are grappling with a slowdown.

Contentious areas

There are other contentious areas in the trade relationship between the two countries. The United States has been leaning on India to reduce the trade surplus of about $23 billion out of the total bilateral trade of $126 billion. In New Delhi, officials point out that the deficit has been declining and say the gap will be further reduced as India increases its energy and defense purchases – India has begun importing shale oil from the United States and military equipment sales have been rising.

Indian price controls on medical devices, restrictions on agricultural imports and recent policies that are disrupting the business model of online retail giants such as Amazon have also irked Washington.

The new e-commerce policy was announced in December on demands from tens of thousands of retail traders who complain of losing business to online companies. The traders form a core support base for Prime Minister Narendra Modi’s Bharatiya Janata Party, which is gearing up for a general election expected to be announced shortly.

India is not the only country facing an end to preferential market access -- the United States has announced that it will also end Turkey's preferential trade status, saying it no longer qualifies as it is "sufficiently economically developed."