20 Марта 2019 г. 14:43

The US’ actions against India were not a surprise but a shock from its strategic partner – Indian expert

The US’ actions against India were not a surprise but a shock from its strategic partner – Indian expert

Following a trade war between the USA and China a similar conflict might erupt between Washington and New Delhi. The US declared their intent to strip India of its privileges within the Generalized System of Preferences. A trade war between the two countries could become disastrous for businesses of both sides – claims Research Scholar at Centre for Central Eurasian Studies (University of Mumbai), President of ALFAAZ Education and Cultural Society (Mumbai) Shoaib Khan, who explained “Eurasia.Expert” why the US want to exclude India from the GSP, who will be stricken the most and how New Delhi can do in return.

- Mr. Khan, US President Donald Trump intends to deprive India and Turkey of trade benefits in the framework of the US Generalized System of Preferences. As the press service of the White House reported on Monday, the head of state sent a corresponding notice to Congress. Trump actually declared a trade war with India. Why does the US want to deprive India of trade benefits? How can you explain this? 

- Trump has repeatedly called out India for its high tariffs. Indian Prime Minister Narendra Modi has courted foreign investment as part of his Make-in-India campaign to turn India into a manufacturing hub and deliver jobs to the millions of youth entering the workforce.

Trump, for his part, has pushed for U.S. manufacturing to return home as part of his Make America Great Again campaign.

- What triggered the latest downturn in the trade ties between the two countries?

- The trigger for the latest downturn in trade ties was India’s new rules on e-commerce that restrict the way Amazon.com Inc and Walmart-backed Flipkart do business in a rapidly growing online market set to touch $200 billion by 2027.

In 2017, items worth $5.7 billion were given duty-free status. Notably, the US Trade Representative's Office claims US goods and services trade deficit with India was $27.3 billion in 2017. The U.S. Trade Representative was completing a review of India’s status as a GSP beneficiary and an announcement was expected over the coming days. India and the United States have developed close political and security ties. But bilateral trade, which stood at $126 billion in 2017, is widely seen to be performing at nearly a quarter of its potential.

India makes use of concessions on about 1,800 products of the 3,700 the GSP covers and goods from sectors such as chemicals and engineering are exempt from US tariffs under the scheme.

India has been the largest beneficiary of the Generalised System of Preferences programme since the 1970s while this sat amid a strategic geopolitical relationship of mutual respect.

Indian officials say that GSP is only symbolic of an important strategic partnership, and the impact of its withdrawal may be low in actual terms.

- What does Trump want to achieve by stripping India of these preferences?

- Trump hopes to close the US trade deficit, though it is safe to guess that the largest economy in the world will continue to run a large current account deficit in the coming years because its domestic savings are far lower than domestic investment.

However, US trade policy will be disruptive. The key question is whether what Trump is doing will lead to trade diversion away from China or worldwide trade destruction.

Trade diversion should benefit India if the government plays its cards well, and that is a big if. Trade destruction will harm all the major economies in the world. India too will get affected. There is reason to bet on trade diversion rather than trade destruction right now.

- Why did the US government exclude Turkey from GSP?

- The US government separately also notified Turkey that it will be removed from the GSP, with the administration citing the rapid growth of the Turkish economy since it was first admitted to the program as the main reason. In the four-and-a-half decades since Turkey's designation as a GSP beneficiary developing country, Turkey's economy has grown and diversified, adding that the country is now sufficiently economically developed so as not to need beneficial access to US markets. The letter also noted that Turkey has already had support removed from similar programmes put in place by other developed nations.

Trump's punitive actions against Turkey and India come just as he and his administration take a more conciliatory approach to negotiations with China over trade.

- How is India going to fight back in a trade war with the USA? What is the reaction in India?

- A couple of weeks back analysts in India discussed about how to get benefit out of the trade war between United States and China and the ways and means to capitalise it. This decision of the US against India was not a surprise but a shock from its strategic partner. The US and India, both have triggered a new round of trade war, which can prove disastrous for businesses from both the nations.

India has been upset by the steel and aluminium tariffs that the United States imposed last year. The Trump administration initiated a review of India’s preferential trade status in 2018, and in recent months there have been increasing signs that negotiations were going poorly. Last year, Robert Lighthizer, the United States trade representative, was expected to travel to India but ended up not going.

In response to a similar move by US few days back, official from the Commerce Ministry has stated that India may impose retaliatory tariffs on US imports worth $10.6 billion.

Around 29 goods have been proposed, on which US exporters can be asked to pay much higher import duty, which will essentially make it unviable for them. These proposed products such as US walnuts, chickpeas, lentils, boric acid and diagnostic reagents, among other goods. Annual burden of $290 million will be imposed, in case India takes this decision, effective from April 1st, 2019.

- How hard will it be for India to be left out of GSP?

- India can take the US move to remove tariff concessions for India under the Generalised System of Preferences (GSP) in its stride. India can manage without GSP preferences meant for extremely poor countries in need of special access to developed world markets. India is no longer in that category. The retaliatory tariffs may kick in either after the current deadline ends or before that.

India reserve its right to drag the US to the WTO (World Trade Organization) as the GSP (generalized system of preferences) withdrawal violates the principle of non-discrimination.

- What business will be affected by the US actions the most?

- If the United States eliminates duty-free access for about 2,000 Indian product lines, it will mostly hurt small businesses such as jewellery, as per the sources. The number of goods qualifying for preferential treatment could be reduced, or the whole programme could be withdrawn.

India fears Trump may demand a free trade agreement if both sides fail to reach a compromise on the trade package. Such a pact would mean zero tariffs for US goods arriving in India, further threatening local industry.

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