India’s stumbling economy receives a major jerk on 10th February when USTR stripped India from developing countries tag under US Counter- Vailing Duty Law or CVD, which is a form of import tax imposed on certain goods to prevent dumping or counter export subsidies. With sluggish job creation, rising piles of NPA, stress on rural households, credit crunch among NBFIs, low consumer confidence as represented by RBI’s latest survey, drop in private investments and profitability, this step by the US was A BOLT FROM THE BLUE, as India relation with the US was on good terms.
Before going deep into the article let’s have a quick look at what is USTR and why this step by the US is a cause of concern for India’s economy.
What is USTR ?
United States Trade Representative or USTR is part of the executive office of the President and headed by Cabinet Member who is US trade representative and serves as President Principal Trade advisor, spokesperson on trade issues. USTR is basically responsible for nurturing and coordinating US international trade, investment policy and negotiations with other countries. It covers various issues ranging from agriculture, labour, industry and manufacturing, environment, intellectual property etc. in addition to pursuing US trade policy objectives.
Countries Removed from USTR
India, Thailand, Hong Kong, Brazil, Indonesia, Malaysia, Vietnam, South Africa and Argentina. Now USTR has 36 developing and 44 least developed countries.
Why India was removed from the USTR list of developing countries
- India has more than 0.5% share of global trade, despite having $12,375 GNI, which is the World Bank threshold separating high income from other countries.
- Part of the G-20 group which has a global economic significance and accounts for large shares of global economic output and trade, indicating a country is developed.
- The US has accused India of claiming wrong trade benefits as significant growth has taken place in the last few decades.
USTR criteria for the updated list
- World Bank’s date on Gross National Income or GNI
- A country share of world trade as obtained from the trade date monitor
- Central Bank, National Statistical Bureau, Customs authority etc. official date
- Miscellaneous factors like EU, G-20, OECD membership
The list was updated in order to harmonize with the obligations under WTO Agreement on Subsidies and Countervailing Measure or SCM. Under the agreement, countries covered claim benefits for preferential treatment with respect to Countervailing Measures and Duties. The US allowed such developing countries to export certain goods in their country without punitive tariffs as imposed on developed nations.
Why revocation of India’s Status – concern matter
- The US drastic step is a matter of grave concern for India
- It will have a lower level of protection against a CVD investigation
- Now the US will be free to hold an investigation under CVD law into trade policies of excluded countries if feel such policies are harming US domestic traders
- India was the largest beneficiary under the Generalised System of Preference or GSP thus exempted from import tariffs over 2000 goods till 2019 and India was in talk with the US regarding the matter. Such a step makes the task of reclaiming the lost GSP more arduous and shadowy.
Conclusion
Revocation of India’s tag of developing status will give a loss of $260 million in GSP benefits besides exacerbating the problem of jobs lost in an economy faced with growing unemployment and stagflation more painful. Tariff war can rise if all the stripped countries retaliate by imposing tariffs on imported US goods. This move can bitter the constructive and cordial trade relation between India and the US. As Mr Trump is due to visit India on February 24 and 25 and a trade package is scheduled to finalize before the U.S. President’s arrival, this move, thus makes the India- US relationship a diplomatic tightrope walk.
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