In what could potentially aggravate trade tensions between India and the US, New Delhi has decided to impose long-pending retaliatory tariffs on 29 US products. Washington had withdrawn duty-free benefits for Indian exports under its Generalized System of Preferences (GSP) effective June 5.
“The duty hikes will come into effect in normal course as the notification to postpone the hikes will expire on Saturday night. We don’t see any reason for escalation as the duty hikes are against the tariff hikes by the US on steel and aluminum products, and not because the US withdrew duty-free benefits to Indian exporters,” said a government official with direct knowledge of the matter, requesting anonymity.
According to the current notification, the retaliatory tariffs will come into effect beginning June 16. India had repeatedly postponed the imposition of retaliatory tariffs of $235 million on import of US goods worth $1.4 billion since they were first announced on June 20, 2018. Key items imported by India from the US include almond and fresh apples worth $645 million and $165 million, respectively.
Biswajit Dhar, professor of economics at Jawaharlal Nehru University, said the escalation in trade tensions between the two countries would have happened in any case. “Trump wants market access in India and he will not stop at the withdrawal of GSP benefits. But I am happy that India has responded, since it was giving a wrong signal about India’s decision-making process. Now, both sides can sit down and talk like equal partners,” he added.
India’s move comes ahead of a meeting between US President Donald Trump and Prime Minister Narendra Modi on the sidelines of a G20 summit on June 28-29 in Osaka, Japan. Trump has often termed India a “tariff king” and repeatedly pointed to the 50% duty that India imposes on imports of Harley-Davidson motorcycles.
US secretary of state Mike Pompeo is scheduled to visit New Delhi on June 25-26, on his way to the G20 Summit, to hold bilateral discussions with his Indian counterpart, external affairs minister S Jaishankar.
Speaking at the 44th annual meeting of the US-India Business Council in Washington DC on Wednesday, Pompeo said they may discuss “tough topics”, including the recent GSP programme decision. “We remain open to dialogue, and hope that our friends in India will drop their trade barriers and trust in the competitiveness of their own companies, their own businesses, their own people, and private sector companies,” Pompeo said.
The trade ministry’s move, which was cleared by the external affairs ministry, comes a day after a senior Trump administration official raised “serious concerns” about India’s planned acquisition of Russian S-400 missile defence systems.
Last week, commerce and industry minister Piyush Goyal said India accepts the decision of the US to withdraw GSP benefits to its exporters “gracefully”, and will work towards making the exports competitive.
Briefing reporters after a meeting with exporters and state government representatives, Goyal said the withdrawal of GSP is not a matter of life and death for all exporters. “India is now evolving and moving out of the crutches that we thought we needed to export. India is no more an underdeveloped or least developed country that we will look at that kind of support. We believe we can be export-competitive at our own strength or at the strength of our own comparative advantage.”
In March, the US had announced its decision to withdraw the preferential duty benefits to India after talks between the two sides broke down on “disproportionate” demands by Washington.
However, the US had deferred the withdrawal of the GSP because the Indian general elections were underway. This had raised hopes that the two sides may re-engage to try and resolve their differences after the Modi government took charge. On June 1, though, the US president surprised everybody by issuing the presidential proclamation and withdrawing GSP benefits given to India, effective June 5.