A quick check of the numbers show that all Indian products satisfy the Competitive Need Limitations criteria.
On October 30, US President Donald Trump signed Proclamation 9813 “to modify the list of products eligible for duty-free treatment under the Generalized System of Preferences”. This proclamationannounced the list of products from the developing countries that would not receive duty-free access to the US market from November 1, which they had hitherto received under the Generalized System of Preferences (GSP).
The GSP has been in place since 1971 after it was adopted unanimously in the second session of the United Nations Conference on Trade and Development (UNCTAD) in 1968. Under the GSP, products exported by the developing countries were granted duty-free access in the markets of developed countries. In other words, developed countries granted unilateral grant of trade concessions to the developing countries for increasing their exports.
While most developed countries introduced the GSP in 1971, the US accepted this system of trade preferences in 1976, after the Trade Act of 1974 authorised the US President “to extend duty-free treatment to certain eligible products imported into the United States from beneficiary developing countries”. The benefits were extended for an initial period of 10 years, which was subsequently extended.
This Act also outlined a set of conditions for determining whether any country should be designated as a beneficiary developing country. These are: (i) a request by the country to be so designated; (ii) the level of economic development of such country; (iii) whether or not the other major developed countries extend their GSP scheme to the country; and (iv) the extent to which the country has assured the US of equitable and reasonable access to its market and basic commodity resources. These conditions gave the trade administration discretionary powers with which they could discriminate against the developing countries while implementing the GSP.
Alongside, the Act also introduced a mechanism that was to be used to review whether specific products originating in the beneficiary developing countries could continue to enjoy the GSP benefits. One of the key mechanisms is the Competitive Need Limitations (CNL). This states that a beneficiary developing country could lose its GSP eligibility with respect to any product if the CNLs are exceeded. There are two measures for CNLs: (i) when, during any calendar year, import of a particular product into the US from a beneficiary developing country account for 50 percent or more of the value of total imports of that product into the US; or (ii) exceed a certain dollar value. As per the GSP rules, the dollar-value limit is increased by $5 million annually. The limit set in 2017 was $180 million.
Enforcement of CNLs is, however, subject to the application of waivers, the more important of which is the de minimis waiver. This waiver is important for it sets a floor for the value of imported products below which the CNLs cannot be enforced. The de-minimis level is adjusted upwards each year, in increments of $500,000. In 2017, the floor was set at $23.5 million.
The current year’s review of the US’ GSP is particularly significant as it identified a much longer list of products to be excluded from the coverage of the system based on the observed CNLs. Ninety-four products were identified from 16 countries — the largest number of products included in this list in recent years. Of these 94 products, 50 were imports from India — by far the largest number for any GSP beneficiary.
A quick check of the numbers show that all the products satisfy the CNL criteria, namely that the imports of these products into the US from India accounted for well over 50 percent or more of the value of total imports of that product into the US in 2017. In case of 12 of these products, India accounted for more than 99 percent of the total imports to the US. However, none of the other identified products imported from India meet the other criteria, i.e. exceeded $180 million in 2017. The list of products targeting imports from India are relatively low-value products; more than half of the 50 identified products had import values of less than $1 million. In fact, the product having the highest import value in 2017, hand-loomed carpet and other textile floor coverings, was just $10.3 million — way below the $180 million threshold.
These calculations show that the entire list of products for which the GSP benefits have been withdrawn, should have been given the benefit of de minimis waiver, where the threshold was $23.5 million in 2017.
Commentators have often argued that the US’ trade administration implements the GSP using a set of objective criteria, and is, therefore, non-discriminatory. The latest round of the GSP review and the application of the rules in the case of India, does not support this argument.