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On Tuesday a group of 44 lawmakers in the United States wrote to President Donald Trump requesting him to reinstate preferential trade treatment for India under the Generalized System of Preferences programme.

They wrote, “Should there be progress in negotiations, we hope you will use the tools provided by the GSP statute as warranted, such as partial reinstatement.”

“We urge you to continue negotiations and consider an early harvest to help American jobs that depend on two-way trade between the United States and India,” the letter said.

What is Preferential Trade Agreements?

A preferential trade agreement provides the signing nations with a special access or preferential treatment to each other’s markets. This helps each of the countries to boost their overall trade.

The Generalized System of Preferences programme (GSP), thus provides duty-free access for up to 4,800 products from 129 designated beneficiary countries and territories.

What are the criteria for inclusion in GSP?

  • Providing the US with equitable and reasonable market access
  • Respecting arbitral awards in favour of US citizens or corporations
  • Combating child labour
  • Providing adequate and effective intellectual property protection
  • Respecting internationally recognised worker rights

India and GSP

One of the largest beneficiaries of the GSP programme was India. In 2017, United States allowed for $5.6 billion, around Rs 3,896 crore, worth of Indian exports to enter the country duty-free A report of the Washington Post suggests that the US received more than $48 billion in goods from India.

However, in June, the US called off the PTA with India stating that the country has not assured that it would “provide equitable and reasonable access” to the markets of India. This was in continuation with an eligibility review launched by the United States back in 2018, which had reviewed India’s compliance with the GSP market access criterion.

What has happened now?

The members of the US Congress wrote a letter to  US Trade Representative Robert Lighthizer, stating that the costs of the GSP termination were real for their constituents and only growing every day.

A US-based group of businesses, trade associations and consumer organisations that advocates for the renewal of GSP, the Coalition for GSP, said that the termination of the programme for India cost American companies about $30 million in July, PTI reported.

An “early harvest” approach would ensure that “long-sought market access gains for US industries” are not held up by negotiations over other matters, and would provide relief for both US importers and exporters.

“Just as US industries are harmed by lack of fair and reciprocal access to India’s market, American companies and workers also are harmed by new tariffs due to GSP termination,” the letter added.

The letter also agreed the US had legitimate concerns about Indian policies that negatively affected American companies that were trying to access the Indian market.

“As you know, several US industries filed petitions under GSP’s market access criterion, which were accepted for review in April 2018,” the Congress members said. “Ultimately, failure to make sufficient progress on the issues led to the termination of India’s GSP eligibility on June 5, 2019.”

The letter was signed by 26 Democrats and 18 Republicans.

“Companies are telling Congress about the American costs – both in dollars and jobs – of lost GSP eligibility for India,” Executive Director of the Coalition for GSP Dan Anthony said. “The letter shows Congress’ strong, bipartisan support for swift action to reinstate GSP for India and to help constituents that depend on two-way trade.”

He added, “Indian exporters are thriving while American companies are stuck paying USD 1 million a day in new tariffs.”

What does this mean?

In its initial submission during the hearing, India had threatened to drag the US to the dispute settlement mechanism of the WTO, claiming withdrawal of the GSP benefits would be “discriminatory, arbitrary and detrimental” to its developmental needs.

India had earlier stated that GSP benefits are integral and catalytic in promoting the pace and sequence of domestic and external economic reforms in India.

India exports nearly 50 products of the 94 products on which GSP benefits were stopped. Restoration of the same would mean a boost to overall trade in India.

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