GSP: Altering Preferential Status is ‘Significant’ or ‘Insignificant’?

The US administration’s withdrawal of the generalized system of preferences (GSP) status for India is being discussed by all the stakeholders including exporters of ready-made garments because the US accounts for 30-35% of exports of this sector. There is no clear indication as to how much negative impact this would cause on India’s exports to the US, if at all there is going to be any effect. Around $5.6 billion worth of exports from India – covering 1,784 textiles, engineering, gems and jewellery and chemical products – will be impacted when the decision comes into force by May this year. If we look at the pattern of the decision making involved in this case by the US Department of Commerce, it is abundantly clear that the process was initiated after the US dairy and medical devices sectors lobbied against India’s so-called trade barriers affecting their exports. If the statement of the US commerce secretary, Wilbur Ross, is any indication, the final trigger could have come when India announced ‘stringent e-commerce rules’ that negatively affected two of the giant US companies – Amazon and Walmart-owned Flipkart.

Analysts are already divided into two groups. One that fears, and believes, that withdrawal of the GSP is going to be the beginning of an ugly trade war between India and the US which will significantly change the India-U.S. trade relations. Already, some analysts believe that India may allow proposed retaliatory duties on 29 US imports that have been deferred six times to kick in from April 1.

Trade associations have been hesitant to openly acknowledge the full impact of the loss of the GSP status saying that it may not have a major impact on India’s garments exports. Some others say the effect will be insignificant. Still some others have a mixed reaction. “The impact would be minimal. But under the present circumstances when exports are already dropping, the government should compensate manufacturers any price increase through subsidy or incentives.” Look at another cautious comment: “The decision would certainly have a bearing on the exports to the US and this comes at a time when the made-in-India items, on the US turf, are already grappling with stiff competition, with items especially from China and Vietnam.”

Only time will tell what is going to be the real scenario once India loses the GSP status. But one important impact that is not finding enough space for discussion is the loss of jobs it will lead to. GSP is meant largely for those export-oriented items manufacturing of which is labour-intensive. So, if the GSP is withdrawn, it will adversely impact jobs in an already depressing job market. This is perhaps because it will fall upon the new central government to address the issue of joblessness in May.

G.D. JASUJA
Managing Editor