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India’s Potential Removal from GSP Programme Could Boost Competitiveness of Mainland Chinese Products

A growing list of trade irritants has stalled U.S.-India trade talks and could prompt the White House to narrow or suspend India’s eligibility for duty-free exports to the United States, according to press reports. A full suspension would threaten nearly US$6 billion worth of Indian goods that currently benefit from duty-free treatment under the Generalised System of Preferences while enhancing the competitiveness of mainland China and other Indian competitors in the U.S. market.

The GSP provides duty-free access to a broad range of products classified under thousands of different tariff lines that are made in some 120 designated beneficiary developing countries and territories. While Hong Kong and mainland China are not included in this programme, the removal of any products and/or beneficiary countries from GSP – and the fact that those products/countries will thence face regular most-favoured-nation rates of duty – can potentially improve the competitive position of Hong Kong and mainland Chinese products in the United States, especially in instances where Hong Kong and/or mainland Chinese exporters directly compete for orders with exporters of any removed products/countries.

Currently, the Office of the U.S. Trade Representative is nearing the completion of a review of India’s GSP  eligibility. Press reports indicate that there is growing speculation that USTR could call for a change to India’s GSP benefits as part of an effort to convince New Delhi to reverse course on a number of trade issues. These include tougher rules on e-commerce marketplaces, efforts to force foreign companies to store data in India, and higher import tariffs on electronic products in apparent violation of India’s commitments under the World Trade Organisation’s Information Technology Agreement. Most recently, the United States joined Canada in asserting that India has exceeded WTO-allowable subsidies for producers of chickpeas, pigeon peas, black matpe, mung beans and lentils.

However, India has concerns of its own. Officials have expressed opposition to U.S. national security-related tariff increases on steel and aluminium and threatened to impose retaliatory duties on US$240 million worth of U.S. exports, although they have delayed such action several times. Other problematic issues include tighter U.S. rules for granting visas to foreign workers and a U.S. proposal that would make it harder for India, mainland China and others to classify themselves as developing countries and thus obtain more flexible terms in WTO agreements.

The two sides had reportedly been working on a bi-lateral agreement to resolve these issues, but The Washington Post reports that talks have stalled because with key elections on the horizon “neither country is in the mood to compromise.” In the meantime, U.S. Commerce Secretary Wilbur Ross is seeking help from the business community, calling on attendees at a recent meeting of the U.S.-India CEO Forum to address India’s “new barriers to American business … with the goal of expanding our bilateral trade and investment ties.” Ross also urged the Indian government to “work with us to achieve reciprocity in trade, and to develop an equitable and level playing field for all businesses.”

India is the largest beneficiary of the U.S. GSP programme, accounting for 27.0 percent or US$5.8 billion of total imports entered under the programme during January-November 2018. Thailand is the second largest beneficiary with an 18.5 percent share or US$4.0 billion, followed by Brazil with a 10.5 percent share or US$2.3 billion and Indonesia with a 9.4 percent share or US$2.0 billion. Products where mainland China could enhance its competitiveness if India’s GSP benefits were suspended include, among others, certain steel products, automotive parts, chemical products, stone products and leather handbags.

Content provided by Picture: HKTDC Research
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