Will GSP help in US-India trade? Mukesh Aghi says no; other experts differ

Ritu Jha-

Mukesh Aghi, president & CEO of the US- India Strategic Partnership Forum, said on the occasion of Indian minister Piyush Goyal’s visit to the US that, the trade policy meeting will look into the impediments and how to get rid of them.

Goyal is in the US to participate the 13th Trade Policy Forum (TPF).

“I do not think we will talk about GSP here,” Aghi told indica over the phone.

However, a few experts believe GSP will benefit India, though it’s hard to achieve, now that it’s in the hands of the US Congress.

Aghi feels that instead of the Generalized System of Preferences (GSP), the two countries ought to talk about bigger issues. “We are not just about trade,” he said. “It’s also about geo-politics, security, education, and immigration. Are we basically bringing in more secure supply chains to a country like India from China?”

He said that the US is focused “more on semi-conductor partnership, digital partnership, secure supply chains especially in generic drugs, and on defense manufacturing between two countries. We are also looking at food.”

He said GSP is not an impediment in the discussion at the moment.

He said that India’s hands are full at the moment with free trade agreements (FTAs) signed with the UAE, Australia, Israel and UK. He is not sure of an FTA between the US and India at the moment.

Official data suggests that bilateral trade between the US and India increased to $119.5 billion in 2021-22 from $80.5 billion in 2020-21. India received $55.61 billion in foreign direct investment from the US between April 2000 and June 2022.

The TPF is chaired by commerce and industry minister from the Indian side and United States Trade Representative (USTR) from the US side.

The TPF is designed to resolve trade and investment issues between the two countries, and consists of five focus groups: Agriculture, Investment, Innovation and Creativity (intellectual Property Rights), Services, and Tariff and Non-Tariff Barriers.

Dinsha Mistree, a research fellow at the Hoover Institution, at Stanford University, where he manages the Program on Strengthening US-Indian Relations said about Goyal’s visit that GSP would be good for India and should be part of any US- India trade discussion. “US and India should be doing a lot more to improve trade and investment, GSP is perhaps the most politically tractable policy to revisit. But GSP requires congressional reauthorization and only then can India be classified,” Mistree said.

Mistree added, “It is mostly in Congress’s hands and it’s still too early to say if it gets politicized. GSP is mostly out of India’s hands. Doing things to attract supply chains are much more doable in theory, but India has always been really bad at industrial policy.”

Mistree also pointed to tariffs says the Indian government has increased tariffs in a number of areas, including input goods. Infrastructure is a factor as well. “India also needs to become much more friendly to foreign business operations,” Mistree said. “Why do you think Ford and Citibank exited from India last year?”

He added, “They were smart enough not to blame government and said they were streamlining operations, but it’s no secret that both companies have had difficulties operating in India. Citi had been there for quite a while, like almost a century as well. It’s a challenging business environment.”

He said, “It’s the overall environment, but tax rationalization could help.”

Mark Linscott, senior fellow with the Atlantic Council’s South Asia Center, stated on the council website: “The first and fifth largest economies in the world have compelling national interests in solidifying and expanding their strategic partnership, yet the trade relationship is stuck with prospects for improvements dim. Two possibilities for 2023 could substantially alter the dynamics and put the trade relationship on a better, healthier course for the future. The first would be reauthorization of the US Generalized System of Preferences (GSP) program by Congress so that the two sides could come back to the table in the TPF with enticements to offer for concluding a wide-ranging trade agreement. If the United States could offer the reinstatement of India’s GSP benefits, the prospects are strong that the two sides could reach an agreement on a series of issues, covering agriculture, health-sector products, digital services, and new trade issues (e.g., environmental sustainability and more equitable distribution of the benefits of trade).”

He added, “The second would be a reversal of the Biden administration’s allergy to negotiating free trade agreements (FTAs), which has handicapped the United States in competing in global markets as their trading partners negotiate preferential trade terms among themselves (India concluded an FTA with the United Arab Emirates (UAE) and an interim FTA with Australia in 2022 and is actively negotiating with the United Kingdom, European Union, and Canada). The playing field has become less level for US export interests as a result, and a more captive US domestic market is neither realistic nor more beneficial. While it is unlikely that India would be at the top of the list for early negotiation of an FTA if the Biden administration changes course (the United Kingdom and Kenya are more likely candidates), even the start of an exploratory process for a US-India FTA would kick-start the expansion of the trade relationship.”

If neither of these possibilities emerge over the next year, it is likely that the TPF will continue to fall short of expectations. Both governments should consider the consequences of a trade relationship that has been going nowhere for too long.

Another senior fellow at the Atlantic Council, Atman Trivedi says in his statement on the council website, “Those searching for a silver-lining can hope the ministerial will inject new momentum into bilateral trade discussions for when the GSP is back in play. Ambassador and US Trade Representative Katherine Tai and Indian Minister of Commerce and Industry Piyush Goyal are thought to enjoy a good rapport. A positive and constructive session would be welcome in advance of India hosting the next round of Indo-Pacific Economic Framework negotiations on February 8-11. Those discussions will center on supply chains, clean economy, and fair economy, but not market access. India opted not to join IPEF’s trade pillar last September but signed-up for the other trade-adjacent topics.”

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