TWN Info Service on WTO and Trade Issues (Mar19/05)
8 March 2019
Third World Network

US announces intention to terminate GSP benefits to India, Turkey

Published in SUNS #8860 6 March 2019

Geneva, 5 Mar (D. Ravi Kanth) – The United States on Monday (4 March) announced its intention to terminate benefits accruing to exporters from India and Turkey under the Generalized System of Preferences (GSP) program on controversial grounds, signaling a new phase of an aggressive pursuit of unilateral trade relations akin to the Monroe Doctrine.

[Beyond causing some irritation and disappointment, official reactions in India suggest they view it as having perhaps a minor effect on Indian exports to the US. According to reports in Indian media, India’s commerce secretary (permanent top official in ministry) Anup Wadhawan said at a press conference on Tuesday the US decision won’t have any “significant impact”. He said: The total GSP benefits amount to about $190 million on overall exports of $5.6 billion between the two countries.

[The US administration wants a reversal of orders of India’s drug pricing regulator, who ordered a significantly cut in the prices of cardiovascular stents and knee implants. The US also wants changes to a decade old religion-based rule that requires all imported dairy products to be derived from animals that have never consumed anything containing “internal organs, blood meal or tissues of ruminant origin.” India has however rejected both these demands of the US. The denial of GSP is said to be related to these restrictions.

[Most of the goods that will now lose the GSP benefits are labour-intensive intermediate parts for US industry – car parts and the like. The US industry (facing intense competition) using these cheaper duty-free imports will be hit as much as the Indian exporter, if not more.

[In the current political situation in India, and an impending General Election, even if some in the Indian government might want to cozy up to the US, it will be very difficult for them to capitulate to the US demands. It will make it even more difficult for the pro-US lobbies in India who are trying to line up India with the US against China. SUNS]

In a terse statement issued on Monday, the Office of the US Trade Representative (USTR) said it “intends to terminate India’s and Turkey’s designations as beneficiary developing countries under the Generalized System of Preferences (GSP) program because they no longer comply with the statutory eligibility criteria”.

At the direction of President Donald J Trump, the USTR said “India’s termination from GSP follows its failure to provide the United States with assurances that it will provide equitable and reasonable access to its markets in numerous sectors.”

Trump informed the Indian government in a letter that “I am taking this step because, after intensive engagement between the United States and government of India, I have determined that India has not assured the United States that it will provide equitable and reasonable access to the markets of India.”

“Turkey’s termination from GSP follows a finding that it is sufficiently economically developed and should no longer benefit from preferential market access to the United States market,” the USTR said in its statement.

“By statute,” the USTR said, the termination of GSP benefits to India and Turkey “may not take effect until at least 60 days after the notifications to Congress and the governments of India and Turkey, and will be enacted by a Presidential Proclamation.”

In a background note, the USTR said the US GSP program offers duty-free treatment to certain Indian products in 19 areas “if beneficiary developing countries meet the eligibility criteria established by Congress.”

The “GSP criteria include, among others, respecting arbitral awards in favor of United States citizens or corporations, combating child labor, respecting internationally recognized worker rights, providing adequate and effective intellectual property protection, and providing the United States with equitable and reasonable market access.”

According to the eligibility review of India’s compliance with the GSP market access criterion in April 2018, the USTR said “India has implemented a wide array of trade barriers that create serious negative effects on United States commerce.”

The USTR, however, did not elaborate on the so-called barriers faced by the American companies or exporters in India.

“Despite intensive engagement, India has failed to take the necessary steps to meet the GSP criterion,” the USTR said.

As regards the termination of GSP benefits to Turkey, the USTR maintained that Turkey does not deserve benefits under the GSP program because of the rapid economic progress and increased per capita gross national income.

The GSP programs provide a margin of preference in the tariffs of developing country exports to developed countries so as to increase competitiveness in the developing countries.

The 1968 UNCTAD-2 resolution on GSP that entered into force in 1971 calls for schemes by preference-giving countries that are “generalized, non-reciprocal, non-discriminatory system of preferences in favour of the developing countries, including special measures in favour of the least advanced among the developing countries.”

(The corresponding GATT decision enabled the preference-giving countries to do this without having to extend benefits to all members under the MFN clause.)

The donor countries are allowed to design their own preference schemes. Further, the Enabling Clause, which legitimizes the legal basis for the extension of non-reciprocal trade preference to and among developing countries, was adopted at the meeting of the Contracting Parties that concluded the Tokyo Round of the GATT (General Agreement on Tariffs and Trade) in 1979.

The decision on “Differential and More Favorable Treatment, Reciprocity and Fuller Participation of Developing Countries”, which is referred to as the Enabling Clause, and Part IV of the GATT (adopted much earlier) offer longer time periods for implementing agreements and commitments, lower levels of commitments and measures to increase trading opportunities.

Clearly, the Enabling Clause (now part of the WTO’s GATT-acquis) states unambiguously that the developed countries do not expect the developing countries in the course of trade negotiations or bilateral trade relations “to make contributions which are inconsistent with their individual development, financial and trade needs.”

“To correct historic discrimination, from Enabling Clause to Agreement on Textiles and Clothing, developing Members fought hard to get special and differential treatment in the negotiations and as well all know, it was an arduous journey,” China’s trade envoy Ambassador Zhang Xiangchen told the General Council last week.

Against this backdrop, the US decision to terminate the GSP benefits to the Indian and Turkish exporters would be tantamount to an aggressive pursuit of its unilateral trade policies, said a trade envoy who asked not to be quoted.

The US, which has been goading India to enter into bilateral free trade agreement negotiations, has exerted unprecedented pressure on the Indian government to fall in line with its unilateral demands for market access.

The US sought market access for dairy products and medical equipment, two areas which India found it difficult to concede because of its public policy priorities.

India, which is the most disease-burdened country in the world with the largest number of people living below the poverty line, could hardly afford imports of dairy products and expensive medical equipment.

Besides, the US has been threatening India that it would terminate the GSP benefits which amount to more than US$5 billion unless New Delhi drastically reduces its import tariffs on Harley-Davidson motorcycles and various other high-end electronics items.

“India is a very high-tariff nation. They charge us a lot,” the US President Trump told his conservative supporters at a meeting last weekend.

“When we send a motorcycle to India, it’s a 100 percent tariff. They charge 100 percent. When India sends a motorcycle to us, we brilliantly charge them nothing,” Trump said.

The Narendra Modi government, which entered into huge defence and nuclear reactor contracts with the US in 2017, is facing a massive economic crisis with rising deficits in the current account.

Recently, the Indian government had increased import duties on various goods because of the exchange rate problems when the rupee sunk to more than 70 rupees per dollar.

The USTR constantly found fault with the enforcement of intellectual property policies even though India has adhered to the provisions in the World Trade Organization’s TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement.

The US corporates, especially Walmart and Amazon, are angry with India’s latest policies and proposed regulations in the electronic commerce. The Indian ministry of industry had unveiled draft regulations in e-commerce that would encourage the domestic companies.

The US decision could undermine the bilateral free trade agreement negotiations with India, said trade analysts in New Delhi.

As regards the termination of GSP benefits to Turkey, the US decision has more to do with the political tensions between Turkey’s president Recep Tayyip Erdogan and the American president, according to the Financial Times of 5 March.

The proposed termination of GSP benefits also coincides with the US assault on the special and differential treatment (S&DT) flexibilities to several developing countries in the future negotiations at the WTO.

Significantly, the US trade-related actions seem somewhat like Washington’s actions for regime change in Venezuela and other South American countries based on its imperialist Monroe Doctrine of 1823.

Washington is insisting on “my way or the highway” policies which can be tackled only if all countries remain united against the unilateral assault on the bilateral and multilateral fronts.