India threatens to drag US to WTO if GSP tariff gains are withdrawn

India has obliquely threatened to drag the US to the dispute settlement mechanism of the World Trade Organization (WTO), claiming withdrawal of the generalized system of preferences (GSP) benefits would be “discriminatory, arbitrary and detrimental” to its developmental needs. India exports goods worth $5.6 billion annually at preferential rates under GSP.

The United States Trade Representative (USTR) in April announced that it is reviewing the GSP eligibility of India, along with Indonesia and Kazakhstan, after the US dairy industry and the US medical device industry requested a review of India’s GSP benefits, given India’s alleged trade barriers affecting US exports in these sectors.

USTR’s GSP subcommittee will hold an open hearing on the GSP review on Tuesday where an Indian representative is expected to participate.

“While the GSP is considered as an exception to the ‘most favoured nation’ (MFN) principle, the conferment of tariff benefits among the beneficiary developing countries should also be governed by the principle of non-discrimination. Both the United States and India are members of the WTO and should strive to uphold the principles guiding the operation of the GSP scheme,” India said in its submission to the USTR, a copy of which was reviewed by Mint.

In 2003, India won a case against the European Commission as the latter denied India GSP benefits for textiles and drugs, making such preferences conditional to countries combating drug production and trafficking or protection of labour rights and environment.

India also reminded the US that related WTO rules governing GSP contained in a 1979 decision also envisages non-discriminatory and non-reciprocal grant of tariff benefits. “Picking out India along with a few GSP benefiting countries, for potential withdrawal of tariff preferences on the ground that India does not provide the US ‘equitable and reasonable access’ to its market would be inconsistent with the non-discriminatory and non-reciprocal obligations governing GSP,” India said.

The submission said top Indian products exported to the US under GSP benefits such as steering wheels and steering columns, parts and accessories of motor vehicles, are not finished goods but intermediaries, which find use in the making of downstream products. “Providing GSP benefits to these intermediary products ensures the supply of price-competitive inputs to the US downstream industries. A withdrawal of GSP benefits and imposition of MFN tariffs on such products will only increase the import costs of such products into the United States,” India argued.

A commerce ministry official said that for exporting dairy products to India, the US needs to certify that dairy products sourced from animals have not consumed feed containing internal organs or blood meal that India mandates for all countries on religious and cultural grounds.

“We had never closed dairy imports. Many countries like France, Germany and New Zealand are now giving the certification about the feed used and export dairy products to India. The US can also follow a similar route,” the official added.

Trade relationships between India and the US have soured under the current US administration, with President Donald Trump unilaterally raising tariffs on steel and aluminium imports from India and challenging its export subsidy regime at the WTO. India has also dragged the US to the WTO on higher steel and aluminium tariffs and has threatened to impose retaliatory tariffs worth $240 million on US imports.