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Understanding Washington’s Move to Exclude India from the GSP

Understanding Washington’s Move to Exclude India from the GSP

On 4 March 2019, The Office of the United States Trade Representative announced through a letter to U.S. Congress that the U.S. intends to terminate India’s designation as a beneficiary developing country under the Generalized System of Preferences (GSP) Scheme.

The move will have direct implications on U.S. businesses that import either finished or intermediate goods from India, increasing their landed costs and further complicating their customs administration.

What is the GSP?

For the uninitiated, GSP is a trade preference program introduced in the U.S. Trade Act of 1974 that provides opportunities for many of the world’s poorest countries to use trade to grow their economies. Several products imported from these countries are extended a preferential treatment, including reduced or waived tariffs. One of the discretionary criteria the U.S. considers when determining the eligibility of a country as a beneficiary of the GSP is whether or not the country being evaluated will provide equitable and reasonable access to its markets and basic commodity resources.

Washington’s recent move to exclude India from the GSP means India-origin goods that were hitherto eligible for preferential treatment will now have import duties imposed, making them more expensive for U.S. importers. 

What caused the change?

U.S. goods and services traded with India totaled an estimated $126.2 billion in 2017. Exports were $49.4 billion and imports were $76.7 billion. The total trade deficit with India was $27.3 billion in 2017. The current U.S. administration is heavily focused on reducing trade deficits, and has taken the view that India has not assured the United States that it will provide equitable and reasonable access to the Indian market.

News reports suggest this was triggered by petitions from the National Milk Producers Federation, the U.S. Dairy Export Council, and the Advanced Medical Technology Association. India requires dairy products to be certified as being sourced from animals that have not consumed internal organs, blood meal or tissues of ruminant origin. The U.S. does not provide such a certification although other exporting countries such as the EU and New Zealand do. India has also recently placed a cap on the prices of medical devices, such as stents, which directly impacts U.S. exporters of these devices to India.

What will be the likely impact?

Experts believe the exclusion of India from the GSP will have a negligible effect on India’s industrial performance as it is expected to affect only about $5.6 billion worth of exports with benefits of about $190 million; an amount that could be absorbed by exporters as an additional cost; or supported by the Indian government through subsidies or similar measures. Others however, note that while the actual duty benefits of the GSP program may be small relative to the country’s total trade activity, they could disproportionately affect India’s small and medium businesses who export intermediate goods – products that are low on the manufacturing value chain and thus not made competitively in the United States. Upcoming national elections in India may also play a part in the government’s approach to the issue.

What happens next?

A mandatory 60 days must now pass after notice has been given to the beneficiary countries and to Congress, during which time the countries can, at least technically, negotiate the changes. After the 60-day period, a beneficiary country can be taken off the GSP list by a presidential proclamation. Sources from the Indian Ministry of External Affairs (MEA) have indicated India will “continue to talk” to the United States government over the 60-day period in hopes of coming to a mutually acceptable agreement.

It must be noted that the two countries are already in discussions to resolve a range of other trade tariff issues, primarily those stemming from the U.S. Administration’s decision not to exempt India from its new steel and aluminium tariffs. India had retaliated by raising import tax on U.S. imports worth $10.6 billion. For example, a tariff of 100% will be applied on imports of U.S. origin almonds and walnuts (up from 30%), and a tariff of 50% will be applied on apples (up from 40%). However, India has delayed implementation of higher tariffs. This is seen by several observers as a sign of India’s willingness to negotiate and arrive at a mutually beneficial solution. On the other hand, the U.S. Administration’s intentions to bring down the overall U.S. trade deficit could see these negotiations fail. 

U.S. importers who bring in products from India should consult with their trade services partners to determine the impact on their overall landed costs and possibly explore alternative sourcing markets that could offer a more favorable tariff regime, shorter transit times or less onerous customs requirements.

Jayachand Pachakkil,is a senior consultant in the Global Trade Consulting division of trade services firm Livingston International. He can be reached at

Japan’s Trade Deficit ‘Narrowly’ Declines in October

Los Angeles, CA – A weak yen and lower oil prices combined to boost Japan’s export volume and cut the country’s massive energy bill, narrowly reducing Japan’s trade deficit in October.

The development was a bright spot among otherwise gloomy data, including recent GDP figures that showed the country – the world’s number-three economy – had slipped into recession.

Japanese exports, led by mainly autos and steel, jumped nearly 10 percent last month with imports climbing by a modest 2.7 percent.

All in all, the new activity translated into a monthly trade deficit of $6 billion.

According to the new figures, the value of shipments to China rose 7.2 percent, while exports to North America climbed 8.5 percent and those to the European Union were up 5.4 percent.

The October boost in exports, say analysts, could be a flash-in-the-pan as Japan is facing tepid growth in the European Union and an overall slowdown in China’s economy, both key export markets.

Last week, the government released figures showing that Japan’s gross domestic product figures contracted 0.4 percent for the second straight quarter after suffering a 1.9 percent contraction in the previous three months.


U.S. Export Volume Declines as Trade Deficit Widens

Washington, D.C. – The volume of U.S. exports unexpectedly hit a five-month low in September, widening the trade deficit by 7.6 percent to $40.3 billion, according to the U.S. Department of Commerce (DOC).

The DOC said that September’s shortfall is bigger than the $38.1 billion deficit that the government had forecasted in its recently published advance gross domestic product (GDP) estimate for the third quarter.

As a result, the 3.5 percent annual growth pace it estimated “will probably be trimmed” when the government publishes its revisions later this month.

At the same time, the agency revised August’s trade deficit to $39.99 billion from a previously reported $40.11 billion shortfall. When adjusted for inflation, the trade deficit increased to $50.76 billion from $48.22 billion.

Trade was reported to have contributed only 1.32 percentage points to U.S. GDP growth.

Exports in September fell 1.5 percent to $195.59 billion, the lowest since April, while exports to the European Union fell 6.5 percent and those to China slipped 3.2 percent.

Transpacific shipments to Japan tumbled 14.7 percent with declines also seen in the volume of exports to both Mexico and Brazil.

Overall imports were unchanged in September as petroleum imports hit their lowest level since November 2009. A domestic energy boom has seen the United States reduce its dependence on foreign oil, helping to temper the trade deficit.

Consumer goods imports, however, were the highest on record, as were non-petroleum imports.

Imports from Canada were the highest since July 2008, while inbound shipments from China also hit an all-time record boosting the U.S. trade deficit with that country gap to $35.6 billion, the highest on record.


US Trade Deficit Narrows, Petro Exports Surge

Washington, DC – In a surprise development, the US trade deficit narrowed in August to its smallest level in seven months on an increase in exports.

The trade gap narrowed 0.5 percent to $40.1 billion, while July’s trade deficit was revised to $40.3 billion, according to Department of Commerce figures released this morning.

Increased global sales of capital goods, consumer goods and industrial supplies were credited with the 0.2 percent increase in exports in August.

The trade gap with China narrowed in August, while exports to Japan rose to their highest level since March 1996.

Imports edged up 0.1 percent to $238.6 billion with imports of capital goods during the month were the highest on record.

However, inbound shipments of petroleum dropping to their lowest level since Nov. 2010 as US oil exports are set to surpass a record that’s held for the past 57 years.

The US shipped 401,000 barrels a day abroad in July, 54,000 shy of the record set in March 1957, according to data compiled by the US Department of Energy (DOE).

US oil exports are expected to reach 1 million barrels a day by the middle of 2015, the DOE said.

Canada accounted for 93 percent of US oil shipments in July with Italy, Singapore and Switzerland also accounting for an increasing share of US-sourced oil sales.


New Seafood Farm Planned Off US West Coast

Los Angeles, CA – A project is underway to develop the US West Coast’s first commercial shellfish “farm” in federal waters to grow mussels and scallops in their natural environment under closely monitored conditions to produce a high-quality product well-suited for export to markets all over the world.

Organized by Catalina Sea Ranch and planned on 100 acres located between the ports of Los Angeles and Long Beach and Catalina Island, the  project is a joint effort with the Southern California Marine Institute (SCMI), the National Oceanic and Atmospheric Administration, several non-profits and a number of private sector companies including Verizon.

As the project is planned in government-controlled waters, approval was sought from the US Army Corps of Engineers and California Coastal Commission, both of which gave the project a green light last January.

Mussels, scallops and several other varieties of bivalves, as well as shellfish including spiny lobsters, grow naturally off the Southern California coast. The Catalina Sea ranch plan calls for the SCMI to spawn the bivalves in an aquatic “nursery, where they’ll be held until they mature before being suspended on lines 30 feet below the surface to feed to filtered phytoplankton under constant monitoring for up to eight months before they’re harvested.

According to Catalina Sea Ranch, the 100-acre farm could produce as much as 2.5 million pounds of high-quality shellfish annually with buyers reportedly already lined-up to sell out the product for the next three years.

Much of what the “farm” produces will be tagged for export to overseas markets.

Currently, with the US importing some 91 percent of the seafood it consumes, the company feels that should the project prove to be a success that’s replicated, the US could stop importing shellfish and actually be an exporter of the seafood.



Senator Slams US-Korea Free Trade Agreement

Washington, DC –The two-year-old US-Korea Free Trade Agreement hasn’t done enough to open the Asian country further to US exports, particularly American-made cars and trucks and agricultural products, according to Sen. Debbie Stabenow (D-Michigan).

Stabenow is the new Chair of the US Senate Finance Committee’s sub-committee on international trade.

Criticizing a trade deal that the Obama administration heralded in 2012, Stabenow cited the treaty as a reason for “caution” in negotiating the proposed Trans-Pacific Partnership that, she said, stands no chance of being ratified this year as there are “some very sticky issues” involving Japan and other nations in the talks.

“We’re continuing to push and the reason for this hearing was to talk about Korea but also to send a message about Japan and what comes next,” Stabenow told the media at a press conference following her first sub-committee meeting.

The free trade pact, she said, “has fallen short of our hopes” while the US trade deficit with Korea “has increased by nearly 50 percent,” Stabenow said.

The agreement, she added, “aimed to open Korea’s markets to American automakers. But agreeing to phase-out tariffs on US-made automobiles hasn’t been enough. Due to non-tariff barriers, Korea remains one of the most closed auto markets in the world.”

Stabenow’s evaluation of the US-Korea trade pact were countered by the Office of the US Trade Representative which released a statement saying that through May, sales of ‘Big Three’-made autos to Korea are up by more than 20 percent and key agriculture products like dairy have seen a more than 40 percent increase in exports.

“These are real results that benefit farmers, workers, and small business owners across the US. We also fully expect that as further tariff elimination takes place and Korea’s economy improves, we will reap greater benefits from KORUS,” the statement said.

Since the Korea agreement took effect, tariffs have been reduced on US-made autos by 50 percent and the value of US auto exports to Korea have increased by 80 percent.

The Association of Global Automakers (AGA), the association representing major foreign automakers including Korean automakers Hyundai Motor Co. and Kia Motors, noted that after the deal foreign automakers have started “exporting thousands of US-made vehicles to Korea” that are “supporting thousands of American jobs.”

Five years ago, 23 import brands together held just 6 percent of Korea’s automotive market, the group noted.

The AGA has released figures showing that Toyota Motor Corp., Honda Motor Co, Volkswagen and Nissan Motor Co. exported to Korea a total of 14,637 vehicles produced in the US in 2013. The group acknowledged that implementation “has not been seamless, and it is unrealistic to expect that an agreement of this magnitude and complexity could be implemented without encountering some challenges.”


Trade Deficit Drops, Exports Up, Imports Down in May

Washington, DC – The US exported $195.5 billion of goods and services in May 2014, cutting the trade deficit by 5.6 percent to $44.4 billion after hitting a two-year high of $47 billion in April, according to the Commerce Department’s Bureau of Economic Analysis (BEA).

Exports of goods and services over the last twelve months totaled $2.3 trillion, which is 45.7 percent above the level of exports in 2009, and have been growing at an annualized rate of 8.9 percent when compared to 2009.

The rise in exports reflected record sales of US-made autos and auto parts, which rose to a record high, the BEA said, while exports of consumer goods were also the highest on record.

Total US exports to Canada were the highest on record while imports from Canada were the highest since July 2008, leaving a trade deficit of $2.8 billion with Canada. America had a record $2.7 billion trade deficit with South Korea in May as imports from that country hit a record high.

During the same time period among the major export markets (i.e., markets with at least $6 billion in annual imports of US goods), the countries with the largest annualized increase in US goods purchases, when compared to 2009, were Panama, 22.5 percent; Russia,19.6 percent; Peru, 17.9 percent; Colombia, 17.4 percent; Ecuador, 17.3 percent; Hong Kong, 17.3 percent; Argentina, 16.3 percent; Nigeria, 15.1 percent; Chile, 14.8 percent; and Indonesia, 14.6 percent.

Imports fell a slight 0.3 percent to $239.8 billion during the month due in large part to an 11.3 percent jump in exports of US petroleum products.

The rise in US production has helped lower the need for imported oil, which dropped by 5 percent in May to $28.3 billion, the lowest monthly import total since November 2010.



US Trade Deficit Surges to Two-Year High

Washington, DC – The volume of US imports surged and exports declined in April, pushing the US trade deficit to a two-year high of $47.2 billion, according to the latest figures released by the US Department of Commerce.

The trade deficit for the month climbed by 6.9 percent from an upwardly revised March deficit of $44.2 billion with imports growing by 1.2 percent to an all-time high of $240.6 billion and exports falling for the fourth month in a row by a rate of 0.2 percent to $195.4 billion.

In 2013, the trade deficit declined by 11.4 percent to $476.4 billion. Some analysts feel the decline in exports can be pegged on the extreme cold weather in the eastern and southern US coupling with the continuing drought in California’s agricultural Central Valley to impact the country’s manufacturing capability and, at the same time, increase the volume of imported foodstuffs.

The same analysts, though, are guardedly forecasting a bounce back with economic growth reaching around 3 percent in the second half of the year as a boom in the nation’s energy sector could well narrow the trade gap. Stronger domestic petroleum production cut oil imports by 10.9 percent during the first quarter of the year, while oil imports in April fell 2.2 percent to $29.8 billion, while conditional US petroleum exports rose 3.1 percent to $11.8 billion.

The US trade deficit with the 28-member European Union hit a monthly record of $14 billion in April as imports from that region hit an all-time high, while the trade gap with China, the largest the US has with any trading partner, jumped 33.7 percent to $27.3 billion in April, the largest gap since January.

The US-China trade relationship has come under scrutiny on Capitol Hill with some lawmakers charging that Beijing is manipulating its currency to keep it undervalued against the dollar. That manipulation, they have said, makes imported Chinese goods cheaper in the US and American-made products more expensive in China.