US says India’s exit from duty-free import scheme is ‘done deal’

The United States on Thursday said India’s suspension from the list of countries benefiting from a duty-free import scheme that was announced in March is a “done deal”, but left the door open for restoring the benefits when India yielded, conceding more access to its markets to American firms.

Previewing Trump administration’s vision for US-India ties under Prime Minister Narendra Modi’s new government, a senior administration official also warned of the “very serious” Turkey-like “conversations” if India goes ahead with its planned purchase of Russian S-400 missile defense systems.

The official began by welcoming, pointedly, Modi’s post-election remarks “that have emphasized inclusivity … that there should be no distinction between Indian citizens”, and went on to describe the relationship between Modi and Trump as “warm”, and the one between two countries as “resilient”.

The official’s remarks on the duty-free import scheme, Generalized System of Preferences, that it is a “done deal” and its time to move on runs counter to the understanding in India, broached and bolstered by officials, that there is still a window of opportunity for negotiations to prevent termination t from going into effect.

“There is every reason to believe that the GSP suspension will move forward,” the official said. The next step, 60 days from the March notification to congress of the administration’s intention to suspend or withdraw/GSP benefits for India, is a presidential memorandum, which has been due since May 4.

That does not rule out, the official added, that in the future if India was able to “achieve the reforms in market access that we need under this programme to restore the benefits”.

For the present, the official went on, “I think we need to be looking forward to how do we relaunch an ambitious set of discussions between our trade teams to address these outstanding irritants.”

The chief irritant is access to certain Indian markets. The United States announced plans to withdraw India’s GSP benefits on March 4 citing India’s failure to provide an assurance it will provide “equitable and reasonable access” to its markets — mainly, for now, dairy and medical devices — to American companies. This is the key trade irritant for the United States, along with Indian data-localization (mandating foreign IT companies to store Indian operations data on India-based servers) and e-commerce rules (regulating online retailers’ supply chains to prevent monopolistic practices).

India has been the largest beneficiary of the GSP programme, which allows certain imports from 120 countries to enter the United States at zero tariff. It sold an estimated $6.3 billion worth of goods to the United States under this programme in 2018 , according to a new report by the Congressional Research Service, a non-partisan source of research, analysis and projections for US lawmakers.

Withdrawal of zero-tariff benefits would subject these products, presuming their volumes remain unaffected, to $190 million, according to official Indian estimates. But people familiar with these discussions fear the new tariff would make these products costlier for US importers, who could then switch from Indian suppliers to those who can supply for less, minus the tariff, to keep down their prices.

The message to the new Modi government was equally tough on its planned purchase of Russian S-400s. “You can take a look at the very serious conversation taking place with our NATO partner Turkey and same concerns will apply should India proceed with its S-400 purchase,” the official said.

The United States has threatened to deny Turkey, a NATO ally which has pursued plans to acquire S-400s disregarding American warnings, the latest defense hardware including F-35, the cutting-edge next generation American-made fighter aircraft in the western alliance.

Defense purchases, the official said framing US objection to India’s Russian acquisitions in a broader strategic framework, are no longer a routine “a la carte” shopping spree. At the highest level of military technology cooperation and transfer, the official sad, it’s more about “with whom you are inter-operable, with whom you are sharing information platforms”. India has signed a bunch of agreements with the US in recent years that dramatically increase defense ties, with an undeclared emphasis on drawing India away from its historically largest supplier of defense equipment, the Soviet Union, now Russia.

The underlying US message is: India needs to choose.

First Published:
May 31, 2019 08:42 IST

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