Since the US announcement of its withdrawal of benefits to India under the Generalised System of Preferences (GSP) on March 4, 2019, there is speculation that Indo-US trade relations may plunge into a downward spiral.
Mark Linscott, Former Assistant US 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”.
Tulsi Gabbard, Democratic presidential aspirant, among several other influential US lawmakers, had urged the Donald Trump administration not to allow any sort of political misrepresentation of the US announcement of GSP withdrawal until general elections in the country were over. Such an understanding would provide more flexibility to respective governments on both sides to resume talks effectively before the US decision is enforced.
However, in the US, policy makers are demanding that action be taken to curb imports of shrimp from India, contending that they are heavily subsidised. Also, in 2018, the US Food and Drug Administration (FDA) intensified their number of inspections of Indian pharmaceutical manufacturers’ manufacturing practices by 24% more than a year earlier. Also, 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 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-U.S. 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 US Withdrawal of GSP Benefits to India suggests a constructive approach to which both the countries may adhere to prevent further erosion of 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.
Second, both countries can identify products on which there can be mutual market access without any major negative fallout on their economic interests. The US 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 deficits with China and could 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 shape new rules on the emerging global economic and political order.
The opportunity cost of retaliatory measures – which India has taken on 28 US products – 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.