Caught off guard, India cannot retaliate against US withdrawal of trade sops

By Prakash Chawla

March 8, 2019

New Delhi: India was caught off guard by the US intent to withdraw zero duty market access to Indian exports worth USD 5.6 billion. Suggestions about dusting off and reviving a proposal about retaliatory trade tariffs on 29 items imported from the US are doing rounds in the media, through un-named officials.

Any retaliation by India to a US measure restricting its market seems least expected – at the present moment of conflict with Pakistan, keeping the Trump Administration in good humour is a sheer necessity. Will the Ministry of External Affairs listen to any trade logic from the Commerce Ministry when it comes to dealing with America?.

As the US Trade Representative (USTR) notified its intent on March 5 to take Indian imports into the American market out of the Generalised System of Preference (GSP) after a notice of 60 days, President Donald Trump described India as a “Tariff King”. The announcement came as a bolt from the blue for the Indian Commerce Ministry which sought to put up a brave face , stating the net duty benefit impact would only be about USD 190 million.

India is the largest beneficiary of the GSP programme with about 2000 of its products going to the US market at zero duty and most of them fall in sectors such as handicrafts, gems-jewellery, engineering and chemicals being manufactured by the MSMEs , employing craftsmen and artisans in millions. USD 190 million may look a small proportion of India’s total exports of about USD 300 billion, but for small time artisans , craftsmen and the MSMEs, that is a lot of market advantage which would disappear and could relocate to competitors like Bangladesh or Vietnam.

Indian bureaucracy knows it too well that the only option is to keep engaged with the US which realises it how important Washington is for New Delhi from the strategic point of view, and if there is any best time for Donald Trump to extract trade concessions it is now.

Up to a point, we bought the trouble ourselves. Even as the US was seeking reduction in duties by India on its agri and dairy products and was quite cut up on price controls on medical devices like stents and implants, the Commerce and Industry Ministry changed the guidelines for foreign online stores, mostly from the US like Amazon and Walmart (Flipkart). Finding its core political base of traders slipping away, the BJP was exerting pressure on its own government to tweak rules to win back some lost ground , just before the general elections.

The new rules for the e-commerce companies put foreign firms at a disadvantage vis-a-vis domestic companies . Flipkart or Amazon cannot hold hold inventory or market private labels in India. Walmart Inc which has acquired Flipkart, has made its disappointment public. “When you make investment in India, things are going to change,” Brett Biggs, Vice President and Chief Financial Officer of the retail giant was quoted in the media.

India runs an annual trade surplus with the US by about USD 23 billion while with China, the American deficit is USD 323 billion. When a trade war broke out between world’s number one and number two economies, we were in a self-acclaim mood, believing India would stand to gain from the slugfest of the giants. Unpredictable that he is, Trump has now opened a trade front with India as well, which New Delhi does not really know how to deal with. Some ground has to be yielded by India, that is for sure, because trade and strategic relations cannot run in contrarian directions.

–India News Stream