‘America First’ Trade Policies: Opportunities Or Obstacles For India?
The Trump administration’s ‘America First’ trade policies have attracted criticism from around the globe on a scale never seen before by any country. The general criticism is that the policies do not stop at being ‘protective’ but have gone on farther, to being ‘punitive’. The twin objectives of protecting the United States industry and punishing countries that do not fall in line with the unilateral demands of the U.S., indeed, appear to be ‘inconsistent’ with the World Trade Organization laws. Let us look at two specific measures under the America First approach namely (a) imposition of additional duty on goods imports from China and (b) withdrawal of Generalized System of Preferences benefits to India.
Imposition Of Additional Duty On Goods Imports From China
Under this policy, the United States started imposing additional tariffs in several ‘waves’ on goods imports from China. In three waves, additional duties of 25 percent have been imposed on 6,830 tariff lines with an annual trade value of $250 billion.
The fourth wave is expected to cover another 3,805 tariff lines with an annual trade value of $300 billion.
These duties are over and above the existing duties such as customs duties, anti-dumping, countervailing and safeguard duties, etc.
The power to levy additional duties originate from Section 301 of the Trade Act of 1974. Under this section, acts, policies or practices of a foreign government that are unreasonable or discriminatory and that burden or restrict U.S. commerce may be subjected to all appropriate and feasible action to obtain the elimination of that act, policy, or practice. An “unreasonable” act, policy, or practice is one that “while not necessarily in violation of, or inconsistent with, the international legal rights of the United States is otherwise unfair and inequitable”.
In this case, USTR has determined that China’s
- technology transfer regime is unfair and unreasonable,
- foreign licensing restrictions are discriminatory,
- outbound investment approvals are unreasonable, and
- intrusions into U.S. commercial computer networks and cyber-enabled theft of IPRs and sensitive commercial information are unreasonable.
Based on such a determination, additional duties of 25 percent have been imposed on almost all goods imports from China.
The critical question is not whether the determination is correct but whether a country can decide its own case against another country and impose punitive or counter measures too. Most of the issues should have been decided by the Dispute Settlement Body of the WTO. The unilateral U.S. actions do undermine the Dispute Settlement Body of the WTO.
Be that as it may, does the imposition of punitive duties on imports from China give an opportunity to India to fill the gap and increase its exports to the United States?
The end-use import data published by the U.S. Census Bureau shows that India’s exports to the U.S. were around 10 percent of that of China during the last three years.
A perusal of the export basket from China and India shows a limited overlapping.
The top four products groups exported by China to the U.S. include telecom and computers, toys, apparel and furniture.
India’s export basket to the United States comprises of the following:
- While China’s telecom and computer related exports accounted for $212 billion, India’s exports of those products were negligible at $0.05 billion.
- Jewellery exports from India were far higher than from China. Exports from China were around $2 billion compared to around $11 billon from India.
- Pharmaceutical exports from India were $6.91 billion in 2018, though 15 percent lower than in 2016. China’s pharma exports to the U.S. hovered around $2.5-3.0 billion during the last three years. India appears to have an opportunity in increasing its pharma exports to the U.S., though a detailed product-wise analysis might show a different picture.
Assuming that the imposition of additional duties would significantly reduce imports from China into the United States, a perusal of U.S. Census Data on end-use imports into the U.S. shows that no one country or a group of countries taken together can step in, increase exports and try to utilise the opportunity created by the levy of additional duties on Chinese goods.
Perhaps, Amercia's intention is also not to replace imports from China by imports from other countries. The purpose could be to increase domestic production within the United States. However, it is not going to be easy, as American industry may not be able to manufacture all products that have been imported from China. Based on the current export profile of India, it may increase its exports to the U.S. marginally and nothing more. If Indian industry increases its capacity for production of information technology products, exports may increase significantly.
Withdrawal Of GSP Benefits To India
The Trump administration has terminated the Generalized System of Preferences (GSP) benefits to India by an Executive Order. The termination comes into force with effect from June 5, 2019. Under the GSP system, which has its legal authority in the Enabling Clause – a 1979 decision of the Contracting Parties (pre-WTO period), a developed country may accord differential and more favourable treatment to developing countries, without according such treatment to developed countries. Paragraph 1 of the Enabling clause uses the phrase ‘may accord’ indicating that extending differential and more favourable treatment to developing countries is not mandatory. Normally, a developed country offers benefits to all the developing countries, but the number of products given preferential treatment may vary from one developing country to another.
Out of $54 billion of exports made by India to the United States, goods worth less than $6 billion were covered under GSP.
Thus, only 10 percent of India’s exports to the U.S. are covered under the GSP program. However, the reasons for withdrawal does not appear to be in line with the spirit of extending preferences to developing countries. If a developing country does not comply with the unilateral demands of the United States, GSP benefits are at stake.
Paragraph 5 of the Enabling Clause states as follows:
A developed country shall not seek a developing country to make contributions or concessions that are inconsistent with its development, financial and trade needs. While withdrawing the GSP benefits to India, the U.S. President has expressly held:
4. ….. I have determined that India has not assured the United States that India will provide equitable and reasonable access to its markets. Accordingly, it is appropriate to terminate India’s designation as a beneficiary developing country effective June 5, 2019.White House Executive Order
The U.S. action appears to be against the ‘Decision of the contracting parties’ as seen from the text of the Enabling Clause.
One further question also arises: Whether a developed country is entitled to maintain differential treatment amongst developing countries? In other words, if a developed country chooses to grant GSP benefits to some developing countries and not to grant similar benefits to other developing countries, will it be WTO compatible? There are no easy answers. A WTO dispute on the interpretation of the Enabling Clause might bring in clarity, though no substantive benefit would come to India out of such a dispute considering the low value of exports covered under GSP. One should also keep in mind that the U.S. GSP program is supposed to expire by December 31, 2020, though a further extension cannot be ruled out.
An additional problem in the case of the U.S. is that it does not have a list of developing countries other than those who are GSP beneficiaries.
If a country is not a GSP beneficiary, it is not treated as a developing country for granting exemption from the levy of safeguard duties.
Under Article 9.1 of the Agreement on Safeguards, safeguard measures shall not be applied against a product originating in a developing country member as long as its share of imports of the product concerned in the importing member does not exceed 3 percent. India was exempt under this provision in the two safeguard measures in force in the United States, i.e., on solar cells/modules and large residential washers. However, with the withdrawal of GSP benefits to India, exemption from safeguard duty has also got terminated. This poses a serious problem for India.
Trump’s ‘America First’ policies offer no significant opportunities for India rather raise significant obstacles for India’s exports.
Seetharaman Sampath is the co-founder of Seetharaman & Associates, a law firm that has international trade & customs law, WTO dispute settlement as a key practice area.
The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.