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U.S. to Terminate Duty-free Benefits for India and Turkey

President Trump announced on 4 March his intent to terminate the eligibility of India and Turkey as beneficiary developing countries under the Generalised System of Preferences. These changes will not take effect until at least 3 May and will be enacted by a presidential proclamation. Once that proclamation takes effect, thousands of products imported from these two countries will no longer be eligible for duty-free treatment under GSP.

The United States on 18 April 2018 launched a review of India’s compliance with the GSP eligibility criteria, focused on whether that country was providing “equitable and reasonable access” to its market as specified in the GSP statute. USTR had accepted two petitions asserting that India was not meeting these criteria with respect to market access for dairy products and advanced medical devices, and the GSP Subcommittee had identified additional concerns from the India chapter of the 2018 National Trade Estimate Report on Foreign Trade Barriers.

The United States had repeatedly expressed concerns about trade with India prior to the institution of the GSP review. For example, U.S. Trade Representative Robert Lighthizer said at the conclusion of the last U.S.-India Trade Policy Forum held on 27 October 2017 that the United States would “continue to seek to identify and address trade barriers related to goods, including manufactured and agriculture, services and intellectual property rights”, in an effort to “increase reciprocal trade” and achieve “a more balanced trade relationship.” The U.S.-India Trade Policy Forum was not held last year and other bi-lateral discussions failed to resolve these nagging market access issues. In USTR’s just-released 2019 Trade Policy Agenda, India is referenced for multiple market access disputes and remains on the priority watch list for IPR concerns.

A note issued by USTR explains that India has implemented a wide array of trade barriers that “create serious negative effects on U.S. commerce.” 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. However, Trump said he will continue to assess this factor, suggesting that India’s eligibility could be reinstated if sufficient progress is met.

The termination of Turkey’s GSP benefits is described as based on a finding that the country is sufficiently economically developed and should no longer benefit from preferential access to the U.S. market. In the announcement, USTR cited “an increase in Gross National Income (GNI) per capita, declining poverty rates, and export diversification, by trading partner and by sector” as evidence of Turkey’s higher level of economic development.

Under the GSP statute, the president may take into account in determining GSP country designations the level of economic development of the country in question, including its per capita gross national product, the living standards of its inhabitants, and any other economic factors that the president deems appropriate. Known as the “competitiveness” criterion, this provision has been used to graduate various economies from the GSP programme, including Hong Kong in 1989, Malaysia in 1997 and Russia in 2014. Whereas graduation for high income based on World Bank statistics is mandatory under the GSP statute and given a longer lead time, removal for competitiveness reasons is subject to presidential discretion and a 60 days’ notice. Turkey had also been the subject of a GSP eligibility review for market access reasons although USTR did not reference that fact in its announcement.

GSP is the largest and oldest U.S. trade preference programme, providing duty-free access for about 120 developing countries and territories on products classified under some 3,500 tariff lines of the U.S. Harmonised Tariff Schedule. An additional 1,500 tariff lines are GSP-eligible if they originate in a least-developed beneficiary developing country. India is the largest beneficiary of the programme, accounting for 27.0 percent or US$5.8 billion of total GSP-eligible imports during January-November 2018. Thailand is the second largest beneficiary with an 18.5 percent share or US$4.0 billion during that same period, 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. Turkey, meanwhile, is the fifth largest beneficiary of the programme with an 8.1 percent share or US$1.7 billion.

Products where mainland China could enhance its competitiveness vis-à-vis India as a result of India’s removal from the GSP programme include, among others, certain steel products, automotive parts, chemical products, stone products and leather handbags. In the case of Turkey, mainland China could potentially improve its competitiveness in such products as certain gold necklaces and neck chains, certain automotive parts, marble, polyethylene terephthalate, certain sugar confectionery products, and certain sporting, hunting and target-shooting shotguns.

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