Since the US announcement of its withdrawal of benefits to India under Generalised System of Preferences (GSP) on March 4, 2019, it is speculated that the Indo-US trade relations may plunge into a downward spiral. Mark Linscott, Former Assistant U.S. Trade Representative for South and Central Asian Affairs and Senior Fellow, Atlantic Council ‘’cautioned that this action could be a first step in a series that might follow, with a cumulative effect of creating significant new tension in the bilateral trade relationship’’.
In this context, it is important to note that India has maintained restraint by not imposing retaliatory tariffs after the U.S. imposed steel and aluminium tariffs on countries including India a year ago. In an election season, however, India may either delay it further or roll out its tariffs on U.S. goods for the sake of not being considered as a weak nation.
Tulsi Gabbard, Democratic presidential aspirant among several other influential US lawmakers have urged Trump administration not to allow any sort of political misrepresentation of the US announcement of GSP withdrawal during elections times in India and defer the termination of GSP benefits until general elections in the country are over.
Such an understanding should provide more flexibility to respective governments on both the sides to resume talks effectively before the US decision is eventually being enforced.
However, in the US, policy makers are now demanding that actions be taken to curb imports of shrimp from India, contending that they are heavily subsidised. Also, in 2018, the U.S. Food and Drug Administration intensified their number of inspections of Indian drugmakers’ manufacturing practices by 24 per cent more than a year before. Moreover, issues around data localisation and e-commerce, among other market entry barriers, are likely to complicate bilateral relations.
Despite this current trade environment, it will be wiser for both the countries to avoid hitting a new low. As argued by an eminent Indian American business leader and philanthropist, Frank Islam, CEO and Chairman, FI Investment Group, USA and Member, International Advisory Board, CUTS Washington DC Center “negotiation is the only way out of the India-US trade conflict and the negotiation must work towards achieving rapprochement in the short-term and a partnership in the long-term”.
In this context, CUTS Policy Note on U.S. Withdrawal of GSP Benefits to India suggests a constructive approach that both the countries may adhere to from further abating their economic and strategic interests. First, India can reconsider its policy stance on e-commerce as it limits fair competition and encourages trade and technology distortion.
Secondly, both countries can identify products on which there can be mutual market access without any major negative fallout on their economic interest. The U.S. should look at products which it is importing from China but can be easily imported from India through necessary adjustments in technical regulations.
Similarly, India should look at products which are otherwise being imported from China and can be imported from the US. This would help both to reduce their respective trade deficit with China and can significantly boost the growth of their bilateral trade. Above all, this would strengthen their economic and strategic partnership in the Indo-Pacific region, which will, in turn, help shaping new rules on the emerging global economic and political order.
The opportunity cost of retaliatory measures will be significant and unbearable. Not only will that dampen the bilateral vows of taking relations to greater heights but also cause trade diversion in favour of third countries.
(The author is Secretary General, CUTS International, a global public policy think and action tank. He can be contacted at email@example.com. The views expressed are personal)