Donald Trump is to terminate “Preferential Trade Status” Designated programe with India and Turkey

Trump says that India and Turkey no longer comply with statutory eligibility criteria

• US President Donald Trump plans to end preferential trade treatment for India that allows duty-free entry for $5.6 billion worth of the country’s exports to the United States.
• The USA government intends to terminate India’s and Turkey’s designations as beneficiary developing countries under the Generalized System of Preferences (GSP) program because they no longer comply with the statutory eligibility criteria.
• The US Trade Representative office mentioned that India has failed to provide assurances that it would allow required market access, while Turkey is “sufficiently economically developed” that it no longer qualifies.
• Donald Trump sent an official letter to the US parliament stating that India has implemented a wide array of trade barriers that create serious negative effects on United States commerce. Turkey, after being designated a GSP beneficiary in 1975, has meanwhile demonstrated a “higher level of economic development,” meaning that it can be “graduated” from the program.

What is Generalized System of Preferences Status?

• It is a preferential tariff system which provides for a formal system of exemption from the more general rules of the World Trade Organization (WTO). It was formerly known as the General Agreement on Tariffs and Trade or GATT.
• It is a system of exemptions from the most favored nation principle (MFN) that obliges WTO member countries to treat the imports of all other WTO member countries no worse than they treat the imports of their “most favored” trading partner.
• In essence, MFN requires WTO member countries to treat imports coming from all other WTO member countries equally, that is, by imposing equal tariffs on them.
• GSP exempts WTO member countries from MFN for the purpose of lowering tariffs for the least developed countries, without also lowering tariffs for rich countries.

Criticism on Generalized System of Preferences (GSP)

• Criticism has been leveled noting that most GSP programs are not completely generalized with respect to products, and this is by design. It does not cover the products of greatest export interest to low-income developing countries lacking natural resources.
• In the United States and many other rich countries, domestic producers of simple manufactured goods, such as textiles, leather goods, ceramics, glass and steel, have long claimed that they could not compete with large quantities of imports. Thus, such products have been categorically excluded from GSP coverage under the U.S. and many other GSP programs.
• Critics assert that these excluded products are precisely the kinds of manufactures that most developing countries are able to export, the argument being that developing countries may not be able to efficiently produce things like locomotives or telecommunications satellites, but they can make shirts.

The effects of USA’s withdrawal of GSP Status on India

• India is the world’s largest beneficiary of the GSP program and ending its participation would be the strongest punitive action for India since Trump took office in 2017.
• The preferential trade treatment brings “actual benefit” of just $250 million a year to India, however, a government source said in New Delhi, adding that it hoped the planned withdrawal would not lead to trade hurdles.

Pic courtesy:WeForNewsHindi