On Monday, the Office of the U.S. Trade Representative issued a statement that said India's and Turkey's designations as beneficiary developing countries under the Generalized System of Preferences program would be canceled due to non-compliance.
Along with India, the same could happen with Turkey as well, said reports on Tuesday.
India is likely to impose retaliatory tariffs on $10.6 billion worth of goods imported from the USA, after the Trump administration made a decision to scrap duty benefits on $5.6 billion worth of exports from India by May, following the collapse of trade negotiations.
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Trump, who has vowed to reduce USA trade deficits, has repeatedly called out India for its high tariffs.
Needling India on trade will have a "corrosive effect" on Modi's views of the USA and fits a pattern of Trump's focus on narrow trade grievances at the expense of broader strategic concerns, according to John Blaxland, head of the Strategic and Defence Studies Centre at the Australian National University.
Under the GSP tariff system, some countries are exempt from the general rules as set by the World Trade Organization.
Of India's $80 billion in annual exports to the USA, only $5.6 billion were covered by the scheme, he added in comments reported by the Press Trust of India news agency.
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New Delhi played down the effect of the decision, with Commerce Secretary Anup Wadhawan saying the withdrawal of the program would not have a "significant impact" on Indian trade.
Under the Generalised System of Preferences (GSP) programme, "certain products can enter the USA duty-free if the beneficiary developing country meets a set of criteria established by Congress". "In a few instances, specific United States requests were not found reasonable and doable at this time by the departments concerned, in light of public welfare concerns reflective of India's developing country status and its national interest", Wadhawan said. "India is a very high-tariff nation". The Harley-Davison tariff issue that he raked up several times over the past year is worth a laughably small amount of money. "Our effort was to balance the affordable prices of the medical devices without compromising on public welfare", Wadhawan said.
India makes use of concessions on about 1,800 products of the 3,700 the GSP covers and goods from sectors such as chemicals and engineering are exempt from United States tariffs under the scheme. "Despite intensive engagement, India has failed to take the necessary steps to meet the GSP criterion". India exported around $50 billion worth of goods to the United States in 2017.
India's trade ministry said in a statement that the trade deficit with the United States was falling and in 2018 it is estimated to have narrowed by over $4 billion.
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The American Apparel and Footwear Association said in a written testimony that if GSP benefits are withdrawn for India as well as Indonesia and Thailand, "companies will have no choice but to return to sourcing from China".