The United States Trade Representative (USTR) has recently revised its list of developing countries that are entitled to preferential treatment in Countervailing Duties (CVDs) investigations, underlying the Generalized System of Preferences (GSP) scheme. In the updated listing, India along with several other countries have been eliminated from the list.
Changed Status and Trade Relations
In the updated list provided by the USTR, India is removed from being a “developing” country to a “developed” country. This substantial revision includes several other countries such as Brazil, Indonesia, Hong Kong, South Africa, Malaysia, Thailand, Vietnam, and Argentina who were also left out from getting preferential treatment. The new roster consists of 36 developing nations and 44 least developed countries.
This shift occurs ahead of the anticipated visit of US President Donald Trump to India with potential for a trade agreement.
Background of Preferential Treatment
The USA introduced the lists of countries classified as per their level of development in 1998 to harmonise USA’s preferential treatment laws with the World Trade Organization’s (WTO) Subsidies and Countervailing Measures (SCM) Agreement. According to this agreement, the use of subsidies becomes disciplined, and it dictates the actions countries can adopt to offset the effects of these subsidies.
A country can leverage the WTO’s dispute-settlement procedure to ascertain the withdrawal of the subsidy or the elimination of its adverse effects. Alternatively, a country can initiate its investigation and impose an additional duty (“countervailing duty”) on subsidised imports impacting domestic producers negatively.
Criteria for Classification of Countries
The classification of countries into developed, developing, and least-developed categories is based on specific criteria:
– Per capita Gross National Income or GNI
– Share in global trade
– Other factors like Organisation for Economic Co-operation and Development (OECD) membership or application for membership, EU membership, and Group of Twenty (G20) membership, etc.
As per these criteria, a country with per capita GNI above $12,375 or Rs 8.82 lakh, a share of over 0.5% in world trade, and membership to the above-mentioned organisations is considered as a developed country by USTR.
Implications for India
As one of the USTR’s newly developed countries, India’s share in global trade was 2.1% for exports and 2.6% for imports in 2017. India is also part of the G20 bloc, which signifies that a nation is developed because G20 members account for significant shares of global economic output and trade.
Furthermore, even with a per capita GNI below $12,375, being a part of G20 allows India to be classified as a developed nation.
The largest beneficiary nation under the GSP is India, with tariff exemptions benefits amounting to $260 million in 2018, according to USTR data. In 2018, goods worth $6.3 billion, approximately 12.1% of India’s total export to the US, were exported to the US under the GSP.
Off the list of developing countries, the USA can now conduct a CVD investigation against India. These CVD laws permit the US to inspect the trade policies of other countries to ascertain if they are damaging the US trade. If it’s found that India’s policies allow exporters to trade their products in the US at a lower rate, the US can impose a countervailing duty, which will increase the cost of Indian goods in the US markets.
Despite a minimal impact on India’s overall trade with the US, specific sectors such as jewellery, leather, pharmaceuticals, chemicals, and agricultural products may face higher costs and competition due to this change.
