This is a guest post by Vineet Hegde, a PhD researcher in International Law at the Leuven Centre for Global Governance Studies at KU Leuven, Belgium.
In the previous post by Simon Lester, he wrote about USTR’s decision to “terminate” GSP preferences to India. This is a second post on US’s intention to “terminate” GSP benefit to India to provide a background for such an action from the US side. Before I continue, I must add that India has argued Simon’s line of possible arguments (in the previous post) in its written submissions to the USTR. It has claimed the violation of the enabling clause and has precisely stated EC – Tariff Preferences dispute to back its claim.
Why has the US decided to “terminate”? The reason I emphasize the word “terminate” is because the word does not exist in this context (GSP designation and termination) under the Trade Act of 1974, but the USTR used it in their official press release. The words used in the legal texts are “withdraw” or “suspend” under Section 502(d) of the Trade Act that grants this authority to the President. One may argue the equivalence of the meaning, but would the procedure differ if the same country (that has been withdrawn or suspended) is to be reinstated as a GSP country? We will have to wait and see, also along with the official language of the presidential proclamation that is yet to be signed.
The reason for withdrawal/suspension is because of the efforts by two lobby groups that were the sole driving force behind this decision: medical devices and dairy industries. US’s top priorities for market access in India have been medical devices and dairy industries, which was also indicated by the US Deputy Assistant Secretary of State for South and Central Asia Alice G. Wells in a Congressional hearing held on 26 July 2018. These two groups have been petitioning for withdrawal of GSP benefits to India due to lack of “equitable and reasonable market access” criteria under the Section 502(c) of the Trade Act in the annual GSP reviews time and again. Barring aside all the aggressive unilateral approach that the US is taking, is it justified in revoking GSP benefits? Probably so, and here is why:
- Medical devices: The Indian National Pharmaceutical Pricing Authority, the authority that regulates prices on medical devices, has imposed price caps on coronary stents and knee implants, as well as market-withdrawal restrictions. The US industry, including lobbying associations like AdvaMed, has been concerned on this front as they claim that the US medical device industry operates at a loss in India and are not allowed to withdraw their products from the market due to government restrictions. India justifies that such measures are necessary to prevent unnatural profiteering on behalf of private hospitals and also to provide affordable healthcare to citizens. Is this protectionism? Is there a least trade restrictive alternative? Probably so. But it cannot go unnoticed that the medical devices companies may have now been performing at a loss in India, without being able to leave the market.
- Dairy products: India has mandated that dairy products be derived from animals which have never consumed any feeds containing internal organs, blood meal, or tissues of ruminant origin. Although, the US has proposed alternative labeling solutions that allow for consumer choice between dairy products derived from animals that have or have not consumed feeds with ruminant protein, the discussion has not mustered confidence. Lobbying groups like US Dairy Export Council and National Milk Producers Federation have also alleged that India does not comply with its WTO obligations for dairy exports. With strong industry voices against market access for US products in India, the US government is likely to move quickly and address these issues. India justifies this mandate on religious and cultural grounds. India has the highest number of vegetarians in the world and this is quintessential to their dairy consumption that dairy is derived from animals that have not consumed any feeds mentioned above. But, is there protectionism? One could say so, because of US’s claim on India’s reluctance to come to a mutually agreeable solution on this matter.
Now, the question of whether the US can withdraw/suspend GSP benefits to India is an important question. Simple answer is, “yes”. This is because is it a discretionary criterion under the Trade Act. Can the GSP benefits be reinstated? Yes. This is also left to the discretion of the President. Therefore, this flexibility becomes an important factor for the US to pressure GSP beneficiary countries (developing and least-developed) to modify their framework based on US regulations.
With a clearer understanding of the background for US’s decision, what will the actual impact of this decision be? In 2017, India exported goods worth $5.6 billion, out of the total of $18.6 billion, through the GSP program. Total Indian exports to the US were $48.6 billion, making the GSP up to 11.5% of total Indian exports to India. Although this may seem significant, once actual losses are calculated, it might not seem so. If tariff rates for all the GSP products that India enjoys benefits to are applied, the actual loss suffered is to the tune of $190 million. Does this matter in the grand scheme of things? India does not think so. Therefore, it might not contest this action of the US at the WTO. Moreover, it must be noted that the products that receive duty-free treatment under the GSP program are raw materials and unfinished goods that aid the US manufacturing sector with resources to further their needs. The actual loss may reflect on the US importers. But as the numbers indicate, it may be miniscule in the grand scheme of things.
As a reaction, India also officially stated that it was willing to consider a suitable trade margin approach for the medical devices; as well as simplified dairy certification requirements regarding feed sources. The ministry statement said that "India was agreeable to a very meaningful mutually acceptable package on the above lines to be agreed to at this time, while keeping remaining issues under discussion in the future". This shows US’s disregard to even use negotiating tactics when countries are willing to engage with US interests. India, being the 9th largest trading partner of the US, is also not a rising threat to the US at the time being, like China. India is also generally accommodating on negotiations and resolution of disputes through diplomatic channels without letting it escalate to litigation. And if India was willing to trade-off GSP benefits, that made more news than might cause actual losses, what will it try to seek in return? India and the US have been engaging in an annual Trade Policy Forum and it is interesting to see what pans out in the further negotiating platform and what it will mean for the India-US trade relations.
