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By Bloomberg | 02 Jun 2019 at 21:00hrs
President Donald Trump opened another potential front in his trade war on Friday, terminating India's designation as a developing nation and thereby eliminating an exception that allowed the country to export nearly 2,000 products to the U.S. duty-free.
"I have determined that India has not assured the United States that India will provide equitable and reasonable access to its markets," Trump said in a proclamation. "Accordingly, it is appropriate to terminate India's designation as a beneficiary developing country effective June 5, 2019."
The action, which the administration has foreshadowed for months, ends India's preferential treatment under the Generalized System of Preferences, a decades-old program designed to promote economic development around the world.
India said in response that it had offered resolutions to the U.S. during bilateral trade discussions, and it's "unfortunate" that those weren't accepted. While the country will continue to work on improving ties with the U.S., its trade decisions would be guided by its own "development imperatives and concerns," India's trade ministry said in a statement.
The Trump administration has said concerns over market access for U.S. goods being exported to India led them to withdraw the benefits, which prohibited duties on about $5.7 billion in imports in 2017, according to the Congressional Research Service.
It follows a move by Trump in May to end Turkey's preferential trade treatment. Turkey was the fifth-largest beneficiary of the program -- which allowed some Turkish exporters to sell products in the U.S. duty free -- in 2017 with $1.7 billion in covered imports to the U.S. India was the largest with $5.7 billion, according to a Research Service report issued in January.
The White House announcement came just a day after Indian Prime Minister Narendra Modi was sworn into office for a second term after a landslide victory in last week's national elections.
Indian lawmakers warned of a potential economic crisis. Trump's decision was a "double whammy" after the nation "succumbed to U.S. pressure" by not buying crude oil from Iran on favorable terms, Randeep Surjewala, chief spokesman of the National Congress Party, said Saturday, according to the Economic Times.
Among the industries most at risk would be agriculture, auto parts and pharmaceuticals, Surjewala said. "We urge Prime Minister Narendra Modi to make a comprehensive statement on the issue to the nation and place before the public a way forward to overcome this grave trade and economic crisis," Surjewala told reporters in New Delhi.
Indian exporters may have forgo benefits worth $260 million after the U.S. elimination, according to the Federation of Indian Export Organisations.
While the warning came months ago that the White House could cut India's preferential treatment, the Trump administration decided to hold off on the announcement until after India's elections to avoid hurting Modi politically, according to people familiar with the matter who asked to not be identified in order to discuss internal deliberations.
U.S. Trade Representative Robert Lighthizer, who's grown increasingly irked over India's trade barriers and practices, has a longstanding frustration with the country's self-designation as a developing nation at the World Trade Organization, the people said.
Still, earlier this week Trump removed India from its currency monitoring list of major trading partners -- it had been added to the list a year ago -- and Secretary of State Michael Pompeo termed the country a "great ally."
The March notice gave India two months to address the administration's concerns before Trump made the end to the tariff treatment official.
The proclamation issued by the White House on Friday also subjects solar cells and washing machines from India and Turkey to duties imposed by Trump in 2018. Both nations had been exempted because of their status as developing countries.
Dan Anthony, executive director of the Coalition for GSP, a trade group, said that the decision "will cost American businesses over $300 million in additional tariffs every year."
"There are no winners from today's decision," Anthony said in a statement. "American importers will pay more, while some American exporters will continue to face current market access barriers in India and others, including farmers, are very likely to be subject to new retaliatory tariffs."