India's lost GSP beneficiary designation has minimal impact on exports
What does the loss of GSP status mean for middle market companies?
INSIGHT ARTICLE |
The Generalized System of Preferences (GSP) was implemented under the Trade Act of 1974 by the United States. The initiative, aimed at promoting economic growth in the developing world by providing preferential duty-free entry for up to 4,800 products from 129 designated beneficiary countries, including India is the largest and oldest trade preference program offered by the U.S.
On March 4, the United States announced its intention to end India’s designation as a beneficiary of GSP. This decision is a result of India failing to provide assurances it will give the U.S. “equitable and reasonable” access to its markets across numerous sectors.
It is estimated around 1,900 products from India, including raw materials and intermediaries across sectors like organic chemicals, would be impacted if GSP were to be withdrawn. Products in this list include precious gems and jewelry, handicraft products, agricultural products, certain chemicals, certain textile products and certain machinery.
The U.S.’s move is expected to have minimal impact on India given exporters were deriving duty-free benefits of $190 million of the total $5.6 billion worth of GSP items traded, indicated Indian commerce secretary Anup Wadhwan during a briefing on the development early March. Specifically, Sharma noted that the GSP decision would have minimal impact to the carpet industry given only a small portion of the market is currently capitalizing on GSP's preferential advantage.
Contrary to Sharma’s position, representatives from the country's leather sector hold a different view, expressing concerns that the sector's U.S. directed exports might be adversely impacted by scrapping GSP. Additionally, this change may have a significant impact on specific sectors like gems and jewelry, handicrafts and agricultural exports.
In regards to potentially implementing retaliatory tariffs on products like steel, the Indian commerce secretary indicated the government would continue to engage in internal discussions. Echoing similar thoughts the chairman of the Carpet Export Promotion Council (CEPC) foresees zero impact of the U.S. move on Indian carpets shipments to the U.S.—its largest overseas market (representing approximately 50 percent of total Indian items being exported).
The termination of GSP represents a setback for Indian exporters. In addition, while the resulting impact is not expected to be significant at the country level, it could have a knock-on effect to dampen Indian investors’ interest in entering the United States.
The proposal to end India’s GSP designation was not a surprise to the Indian government. Nevertheless, certain industries like motor vehicle parts, ferro alloys, precious metal jewelry, building stone, insulated cables and wires will be impacted by the duty loss.
Affected industries should review their pricing model going forward and determine how margins will be impacted by duty loss. Making business decisions on whether to absorb the duty loss or adjust product pricing to compensate for the duty loss. Additionally, affected industry advocacy groups will likely urge the government to extend fiscal support to those products where GSP tariff advantage has been significant, particularly in the labor-intensive sectors.