India-US Current Affairs - 2019
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The United States of America (USA) President Donald Trump terminated India’s designation as a beneficiary developing nation under the GSP (Generalized System of Preference) trade program w.e.f. 5 June 2019.
- The US has withdrawn preferential tariffs to Indian exports. The step was taken on determining that India has not committed to provide “equitable and reasonable access to its markets” for the US.
- Under the US’s oldest preferential trade scheme called GSP, India is the largest beneficiary nation and exported goods worth $6.35 billion under the scheme in 2018.
- Reasons: cited by trump administration are trade imbalance with India, no access to Indian market for US dairy, medical device industry and issues related to data localisation norms.
- Outcome: As per the traders, exports are likely to become costlier, even less competitive in specific sectors, but the overall impact would be minimal on India’s outbound trade with US. Although, some specific exports from India in sectors like leather, jewellery, agricultural products chemicals and pharmaceuticals are set to face higher costs and competition.
About GSP benefits
- The Generalized System of Preferences are unilateral, non-reciprocal and non-discriminatory benefits extended by some developed nations to developing countries.
- Background: GSP was instituted on 1 January 1976, by Trade Act of 1974. The GSP program has effective dates which are specified in relevant legislation thus in order to remain in effect it requires periodical reauthorization.
- Objective: The U.S. designed trade program seeks to promote economic growth in developing countries by providing preferential duty-free entry for up to 4,800 products from 129 designated beneficiary countries and territories.
- Eligibility Criteria: As per US norms, to qualify for GSP a beneficiary nation must meet 15 discretionary and mandatory eligibility criteria established by US Congress which includes providing US with equitable and reasonable market access, respecting mutual and internationally recognised worker rights, working for combating child labour and providing adequate and effective intellectual property rights (IPR) protection. But, reinstatement of GSP benefits is conditional.
- As part of bilateral trade discussions between India and US, India had offered resolution on significant US requests in an effort to find a mutually acceptable way forward but unfortunately that this did not find acceptance by US. Therefore, like US and other nations India shall always uphold its national interest in these matters and should consider significant development imperatives and concerns and its people who also aspire for better standards of living.
- In any bilateral relationship particularly in area of economic ties, there are issues which get resolved mutually from time to time. Thus India views this issue as a part of this regular process and will continue to build on strong ties with US, both economically and people-to-people. India is confident that two countries will continue to work together intensively for further growing these ties in a mutually beneficial manner.
In a recent announcement by United States, it has removed India and Switzerland from the currency monitoring lists. The US has retained other countries like China, Japan and Germany in the list.
- Background: It was in May 2018 when for the first time India was placed by US in its currency monitoring list of countries with potentially questionable foreign exchange policies, and because India had a bilateral trade surplus with US, which crossed country’s maximum limit of $20 billion. Other five other countries along with India included Japan, China, Switzerland, Germany and South Korea.
- Objective: The list basically consists of major trading partners of US who are to be closely monitored for potentially questionable foreign exchange policies. The move is taken amid escalating trade tensions between the two countries.
- About: In the latest semi-annual report on macroeconomic and foreign exchange (Forex) policies of major trading partners of the US, the country has removed India and Switzerland from the monitoring list. The list now includes other countries like Italy, Japan, Singapore, China, Malaysia, Ireland, Vietnam, Germany and Korea.
- Reasons: US President Donald Trump’s administration cited reason for removal that India has taken certain steps and developments which address some of its major concerns over its currency practices and macroeconomic policies. According to analysis, in year 2018 both India and Switzerland saw a notable decline in the scale and frequency of foreign exchange purchases.
- Criteria: The US includes major trading partners in its monitoring Currency List if they meet at least two of three criteria-
- If partner country has either a significant bilateral trade surplus with the US.
- If partner country has a material current account surplus.
- If partner country is engaged in “persistent one-sided intervention” in foreign exchange (Forex) market.
India-US Recent Trade Relation
- Over the past two years, US has been putting pressure on India by increasing tariffs on products like steel and aluminum, and also removed India from US’s Generalized System of Preferences (GSP), that allowed Indian businesses certain trade benefits.
- India attempts to reduce its trade surplus of over $20 billion with US. In May 2019 India stated that purchasing or imports of larger products like aircraft from US companies (like Boeing) could help offset it going forward. Thus showing a positive effort that at least on one front, India can be reassured that it will not be targeted with unilateral measures over currency issues.