Protectionism is at its peak. USA, or rather, Trump feels that the entire world has been having a party at the cost of his country. And he is trying all he can to end this party. He has already fired salvos as China and India has always been on his radar. Starting with H1B, then tariffs on steel, he has made it clear that barriers will only go up further. But raising barriers at a time when the world cannot survive without globalization, well, the Americans will end up paying a price for these barriers more than the world. Guess, Trump forgets that when the world is partying and America is the host, the host all enjoys benefits, right?
These are the thoughts that come to mind when we read that India’s ‘Generalised System of Preference’ or GSP has been withdrawn. This, in simple parlance means that India’s export of some 3700 products to USA, which had zero tariff will now get treated like all other exports. India’s preferential treatment thus comes to an end; we have 60-days for this to kick in but essentially, it’s now over.
It was America itself which had started this GSP in 1974 when American economy was booming and it wanted to expand beyond its horizons. That time, to serve its own purpose, USA had enlisted 120 countries that were to get this “zero tariff” or preferential treatment. These were countries that were economically weak or were in the process of developing. Over the years, India has consistently topped the list of GSP. In 2017, the Commerce Secretary has said that out of the total exports to USA worth $5.6 billion, only 190 million came via GSP.
If we look at the “glass full” argument, what this means is that USA no longer considers India to be economically challenged. And ideally, that should have been the message conveyed to the world. But what got conveyed is a mounting trade war between India and USA; after China, Trump is now after India – that’s the “half empty glass” scene.
For Trump, this was a way to get back. His pet peeve, the all-bran and American brand, Harley Davidson did not get the preferential treatment that he demanded. Then there was his demand for bringing down the 150% import duty on alcohol coming from America and other countries. To make matters worse, India tightened the screws on e-commerce giants, Amazon and Walmart and then on online streamers like Netflix and Amazon Prime, Hotspot.
On top of all this, last year, the National Pharmaceutical Pricing Authority slashed the prices of drug-coated stents by 85% and also did not relent to the request of foreign manufacturers to create a sub-category for newly launched drug eluting stents. Prices of knee replants were also cut sharply - these were also mostly imports. Naturally, these companies had to retaliate. They saw that medical devices and dairy were the big ticket items in GSP and decided to hit.
Representations from the American dairy industry conveyed to Trump that there were hurting because of India’s religion based rule which stipulates that all imported dairy products are to be derived from animals that have never consumed anything containing internal organs, blood meal or tissues of ruminant origin.
Well, India did not bow down to requests of neither the stent makers nor the dairy importers of USA. India categorically said that both requests were non-negotiable. Thus our GSP was hit. It’s as simple as that!
Though the Indian commerce ministry has conveyed that this would have minimal or no impact, small and medium scale exporters are sure to feel the hurt. This could maim many SMEs, which were as such fighting for survival after demoneitization and GST. So when Nomura or other experts say that there will be no impact, they are essentially referring to big and listed companies but what about the SMEs? Small and medium scale companies are the backbone of Indian economy – we need to do everything to protect them first. Agreed that we do not require a special status any more but the timing of this removal from GSP seems more retaliatory.
India will have to decide when and how to get back. After the US imposed stiff tariffs on steel and aluminum last year, India did announce its own tariff on US goods worth $240 million. That has been deferred for a record six times. But as the latest deadline of 1st April draws closer, it would interesting to see what we do - a surgical strike on American goods or adopt a never ending wait-and-watch attitude.