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 (Mint file)
(Mint file)

Trade status: India should focus on maximizing dollar-and-cent gains: Analysts

  • GSP programmes provide a margin of preference in the tariffs of developing countries' exports to developed countries in a move to increase competitiveness
  • Under the GSP arrangement with the US, Indian exporters secure mark access benefits to the tune of more than $ 5.6 billion in the American market

Washington: US President Donald Trump’s decision on Friday to terminate benefits accruing to Indian exporters under the Generalized System of Preferences (GSP) scheme from 5 June must propel New Delhi to face the headwinds in the global trading system by pursuing robust trade policies to maximize its dollar-and-cent gains, according to analysts.

After imposing unilateral trade measures separately on China and Mexico during the past seven days, President Trump opened another front targeting India this time. New Delhi has not provided “equitable and reasonable access to its markets," he charged. Therefore, “it is appropriate to terminate India’s designation as a beneficiary developing country [under the GSP scheme] effective June 5, 2019."

The presidential proclamation, however, did not reveal/ suggest the areas in which India had denied market access. Prior to the decision, senior trade officials from India and the US held several rounds of negotiations to resolve their differences.

A statement from the commerce ministry said that New Delhi had offered “resolution on significant US requests in an effort to find a mutually acceptable way forward." “India like the US and other nations shall always uphold national interest in these matters," the commerce minister release asserted. “We have significant development imperatives and concerns and our people aspire for better standards of living. This will remain the guiding factor in the government’s approach," India stated ambiguously.

GSP programmes provide a margin of preference in the tariffs of developing countries' exports to developed countries in a move to to increase competitiveness. Under the current GSP arrangement with the US, Indian exporters secure mark access benefits to the tune of more than $ 5.6 billion in the American market.

In 1979, the GSP schemes were legitimized through what is called the Enabling Clause that clearly stated that schemes by preference-giving developed countries such as the US must remain “generalized, non-reciprocal, non-discriminatory system of preferences in favor of the developing countries."

The Enabling Clause was adopted at the end of the Tokyo Round of the GATT (General Agreement on Tariffs and Trade) negotiations in 1979. Later, it became part of the WTO’s rulebook, stating unambiguously that the developed countries do not expect the developing countries in course of trade negotiations or bilateral trade relations “to make contributions which are inconsistent with their individual development, financial and trade needs."

But President Trump is never bothered with multilaterally- agreed trade rules. He seems determined to secure/extort market access concessions from India for dairy and pharmaceutical products.

More than the market access concessions in India, the US does not want India to strengthen its farm and other sectors, especially the digital sector. It has raised several challenges against the minimum support price schemes for rice, wheat, and pulses among others. The US wants India to adhere to commitments in the farm sector which were negotiated more than 30 years ago under the previous Uruguay Round in December 1993.

By successively blocking the Doha Round of negotiations, which were launched to address the asymmetries in the Uruguay Round commitments, the US wants tie India’s hands to commitments that can’t be justified in the current context of food inflation and rising population, said a trade envoy, who asked not to be quoted.

The US’ pharmaceutical industry reckons India as the biggest market for its products. It remains opposed to domestic generic industry-initiatives even though they offered medicines at affordable prices for a range of new diseases.

In addition to the farm and pharmaceutical sectors, India’s evolving domestic digital trade policies remain a major concern for the American behemoths like the Amazon and Wallmart. The US is proposing maximalist policies in the digital trade such as removing prohibitions on storing data in international servers, cloud-computing, and mandatory access to source code among others. These policies will clearly curb the development of domestic digital platforms and industries in India, the trade envoy said.

The Trump administration wants to eliminate special and differential treatment flexibilities for developing countries such as India in the current and future trade negotiations. India, which held a ministerial meeting of developing countries last month, clearly opposed the Trump administration’s decision to eliminate the S&DT flexibilities for developing countries. India is also opposed to the US’ decision to block the selection process for filling vacancies at the highest court for global trade disputes at the World Trade Organization.

Against this backdrop, it is clear that the US remains opposed to implementing robust trade policies by India or attempts to build an international developing-country coalition by India. At a time when the trade war with China could cause major changes in the global trading environment, India should squarely focus on how to maximize its dollar-and-cent gains in farm, pharmaceutical, and digital sectors.

New trade minister Piyush Goyal needs to ensure that the government’s trade policy initiatives are decoupled from strategic and defence initiatives with Washington like Israel. Israel follows protectionist farm, pharmaceutipal and digital policies while maintaining a strong defence-relationship with the US. It remains to be seen whether the Modi government can assiduously pursue a trade policy that addresses its numerous domestic concerns.

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