NEW DELHI — U.S. President Donald Trump's decision to end preferential trade treatment for India, will end benefits under a nearly 50-year-old program for up to $5.6 billion worth of New Delhi's exports to America.
The move comes after more than a year of back-and-forth between the two countries, and pressure exerted upon the Trump administration by the American dairy export and medical devices lobbies.
"I am taking this step because, after intensive engagement between the United States and the government of India, I have determined that India has not assured the United States that it will provide equitable and reasonable access to the markets of India," Trump said in a letter to Congress on Tuesday morning.
According to World Bank data, India is currently the largest beneficiary of the ‘generalized system of preferences' (GSP) program, a trade initiative that was first started back in the 1970s. India's commerce ministry, however, has downplayed the impact of the move, saying that withdrawal of GSP benefits will have a "minimal and moderate impact".
"The total GSP benefits amount to about $190 million on overall exports of $5.6 billion between the two countries," commerce secretary Anup Wadhawan said at a press conference on Tuesday morning. "We had worked out a meaningful package that covered the US" concerns but they made additional requests which were not acceptable at this time," he added. "The GSP system is envisaged as a non-reciprocal benefit to developing countries."
But how did US-India economic tensions reach this point? How symbolic is this move? The Wire breaks it down.
Why did Trump take this step?
The Trump administration has a number of grievances against India on the trade front. These range from the president's personal pet peeve (high tariffs on imported Harley-Davidson motorcycles) to other trade barriers on goods like natural rubber, textiles and alcoholic beverages.
The decision to review and ultimately eject India from the GSP program, however, was sparked by representations made by two American lobbies: the medical devices industry and the two dairy products associations.
Companies in these sectors felt that India had erected trade barriers for their goods and products. As a measure of retaliation, they wanted Trump to withdraw India's GSP benefits.
In October 2017, the Advanced Medical Technology Association (AdvaMed) – which represents top-tier firms like Abbott and Medtronic – made representations to the US Trade representatives in this regard. Their move was prompted by decisions taken by India's drug pricing regulator to significantly cut the prices of cardiovascular stents and knee implants.
As The Wire has previously reported, the American milk and cow lobby is also upset with India over a decade old religion-based rule that requires all imported dairy products to be derived from animals that have never consumed anything containing "internal organs, blood meal or tissues of ruminant origin". India was not willing to bow down to both these demands. In his press conference, Wadhawan indicated that both requests were non-negotiable.
Will it hurt India economically?
The commerce ministry has shrugged off concerns that it will have any major economic impact, noting that total benefits amount to roughly $190 million on overall exports of $5.6 billion.
In a statement, Ajay Sahai, the Director General of Federation of Indian Export Organisations, has noted that farm, marine and handicraft products were also likely to be impacted.
As the table below shows, the top GSP products that were exported by India to the US included ‘intermediate goods' – a term that refers to products that are low on the manufacturing value chain and thus not made competitively in the United States.
Indeed, this is the crux of the matter: the actual duty benefits of the GSP program is small in the larger scheme of Indian trade. However, they disproportionately affect India's small and medium businesses. In the run-up to India's GSP review, over 50 MSMEs submitted comments and pleas to the US government sub-committee in charge of the decision.
Will there be political blowback?
This kind of angst is something the Modi government can't afford in months leading up to the Lok Sabha elections. India's MSME sector has already had a tough run in the last three years, dealing as it had to with demonetisation and poor GST implementation.
While the Trump administration's decision will not take effect for at least 60 days, which gives New Delhi some elbow room, it will no doubt have a ripple effect on what has traditionally been a voter base for the BJP.
External affairs ministry sources have indicated that India will still "continue to talk" to the United States government.
"Our view is that we are still in discussion, and we will continue to talk to them. We would like to see that we could reach an agreement," MEA sources said. It is unclear however whether a compromise can be struck in the next 60 days.
What does it mean for future trade talks?
The decision to withdraw GSP benefits comes at an uncomfortable time for India. Washington and New Delhi are already at loggerheads on a range of other trade tariff issues.
For instance, the Modi government has been uncertain on whether it wants to draw a line in the sand on retaliatory tariffs.
In 2018, the Trump administration refused to exempt India from its new steel and aluminum tariffs. In response, the Centre decided to raise import tax from August 2018 on some US products including almonds, walnuts and apples. However, India has refused to take the plunge and actually do it: it has delayed implementation of higher tariffs a number of times. The last time it deferred acting on its retaliatory action was just two weeks ago, in the last week of February 2019.
On other trade battlefronts, India is on a firmer footing but hasn't found a way to make the US accede to its demands – particularly on lower customs duties on smartphones and contentious e-commerce issues.
The GSP blow, while largely symbolic, shows that like many other countries, Trump is unwilling to settle with India until the bilateral trade deficit ($20 billion or so) is decisively chopped.
Japan's new prime minister is facing the twin challenges of COVID-19 and regional tensions, and some wonder whether he can even last as long as his predecessor, who was forced out after barely one year.
TOKYO — When Fumio Kishida, Japan's new prime minister. introduced himself earlier this month, he announced that the three major projects of his premiership will be the control of the ongoing pandemic; a new type of capitalism; and national security.
Kishida also pledged to deal with China "as its neighbor, biggest trade partner and an important nation which Japan should continue to dialogue with."
Nothing too surprising. Still, it was a rapid turn of events that brought him to the top job, taking over for highly unpopular predecessor, Yoshihide Suga, who had suddenly announced his resignation from office.
After a fierce race, Kishida defeated Taro Kono to become the president of the ruling Liberal Democratic Party (LDP), and pave the way for the prime minister's job.
Born into politics
A key reason for Kishida's victory is the improving health situation, following Japan's fifth wave of the COVID pandemic that coincided with this summer's Olympic Games in Tokyo.
The best way to describe Kishida is to compare him to a sponge: not the most interesting item in a kitchen, yet it can absorb problems and clean up muck. His slogan ("Leaders exist to make other people shine") reflects well his political philosophy.
He is an excellent actor.
Kishida was born into a political family: His grandfather and father were both parliament members. Between the ages of six to nine, he studied in New York because of his father's work at the time. He attended the most prestigious private secondary school — the Kaisei Academy, of which about half of its graduates go to the University of Tokyo.
However, after failing three times the entrance exam to , Kishida finally settled for Waseda University. Coming from a family where virtually all the men went to UTokyo, this was Kishida's first great failure in life.
An invitation for Obama
After he graduated from college, Kishida worked for five years in a bank before serving as secretary for his father, Fumitake Kishida. In 1992, his father suddenly died at the age of 65. The following year, Kishida inherited his father's legacy to be elected as a member of the House of Representatives for the Hiroshima constituency. Since then, he has been elected successfully nine straight times, and served as Shinzo Abe's foreign minister for four years, beginning in December 2012. A former subordinate of his from that time commented on Kishida:
"If we are to sum him up in one sentence, he is an excellent actor. Whenever he was meeting his peers from other countries, we would remind him what should be emphasized, or when a firm, unyielding 'No' was necessary, and so on ... At the meetings, he would then put on his best show, just like an actor."
According to some insiders, during this period as foreign minister, his toughest stance was on nuclear weapons. This is due to the fact that his family hails from Hiroshima.
In 2016, following his suggestion, the G7 Ise-Shima Summit was held in Hiroshima, which meant that President Barack Obama visited the city — the first visit by a U.S. president to Hiroshima, where 118,661 lives were annihilated by the U.S. atomic bomb.
Shinzo Abe, Barack Obama and Fumio Kishida in Hiroshima in 2016commons.wikimedia.org
In September, 2020 when Shinzo Abe stepped down as prime minister, Kishida put out his candidacy for the first time for LDP's presidency. He didn't even get close. This was his second great failure.
But reading his biography, Kishida Vision, I must say that besides the two aforementioned hiccups, Kishida's life has been smooth sailing over the past 64 years
When one has had a happy and easy life, one tends to think that human nature is fundamentally good. Yet, the world doesn't work like that. And Japanese tend to believe that "human nature is vice," and have always felt a bit uneasy with the dovish Kishida diplomacy when he was foreign minister.
Leftist traditions from Hiroshima
Hiroshima has always been a city with a leftist political tradition. Kishida's character, coupled with the fact that he belongs to the moderate Kochikai faction within the LDP, inevitably means that he won't be a right-wing prime minister.
How long will a Fumio Kishida government last?
Kishida would never have the courage to be engaged in any military action alongside Japan's ally, the United States, nor will he set off to rewrite the country's constitution.
So after barely a year of Yoshihide Suga in office, how long will a Fumio Kishida government last? If Japan can maintain its relatively stable health situation for some time, it could be a while. But if COVID comes roaring back, and the winter brings a sixth wave of the pandemic as virtually all Japanese experts in infectious diseases have predicted, then Kishida may just end up like Suga. No sponge can clean up that mess.
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