President Donald Trump has thrown a wrench into trade relations with India and Turkey in his latest move to shake up the global trading system, after deciding goods from the two countries were no longer eligible for preferential, tariff-free access to the US market.
In a statement late on Monday, the US trade representative (USTR) said Turkey and India no longer qualified as “beneficiary developing countries” under Washington’s Generalised System of Preferences (GSP), which provides many low-income and emerging economies with duty-free access to the US market for some exports.
New Delhi had failed to assure the US of “equitable and reasonable” market access while Turkey was now “sufficiently economically developed”, the USTR said.
The impact on total exports in Turkey and India will be relatively small. But the move risks stoking tension between New Delhi and Washington as Mr Trump closes in on an agreement with Beijing to end the trade war between the US and China.
It could also exacerbate strains between Ankara and Washington as the two Nato allies are seeking to reach agreement across a batch of disputes, and comes at a time of fragility for the Turkish economy, which has suffered a sharp slowdown in growth following last year’s lira crisis.
Trade tension between Washington and New Delhi intensified over the past year, as the US business community fumed over a range of Indian tariff and regulatory policies that hurt their prospects in the Indian market.
India has been the largest beneficiary of the US GSP programme. In 2017, its duty-free exports to the US under the GSP were around $5.6bn, or just over 11 per cent of the approximately $48bn of goods it exported to the US that year.
Washington launched a review of India’s preferential trade privileges in April 2018, complaining New Delhi had not sufficiently opened up its market to justify duty-free access to the US.
“India has implemented a wide array of trade barriers that create serious negative effects on United States commerce,” the USTR said at the time. “Despite intensive engagement, India has failed to take the necessary steps to meet the GSP criterion.”
Mr Trump’s frustration with India’s trade policies has been reflected in his repeated lashing out at India for its high tariffs on US Harley-Davidson motorcycles, a theme he returned to this weekend while addressing conservative activists outside Washington.
“India is a very high tariff nation. They charge us a lot,” the US president said. “When we send a motorcycle to India, it’s a 100 per cent tariff. They charge 100 per cent. When India sends a motorcycle to us, we brilliantly charge them nothing.”
But frustration with India is widespread among US businesses. In the past year, India has raised import duties on a wide range of goods as part of Indian prime minister Narendra Modi’s campaign to promote domestic manufacturing, hitting companies such as Apple and Ford.
India’s price controls on drugs and medical devices such as cardiac stents, and its intellectual property policies, are another big source of friction, as are New Delhi’s volatile restrictions on agricultural commodity imports.
Recent months have also brought trouble for Walmart and Amazon, which have invested billions of dollars in Indian ecommerce. New Delhi last month overhauled its regulations as a way to give greater advantage to large domestic players, such as Mukesh Ambani’s Jio.
Anup Wadhawan, a senior official in India’s commerce ministry, on Tuesday played down the impact of the US move, saying the benefits of GSP to Indian exporters were small when set against the volume of trade.
“Our total GSP benefits were to the tune of $190m on [exports] of $5.6bn,” he told journalists in New Delhi. “So the benefits, both in an absolute sense and as a percentage of the trade involved, are very minimal and moderate.”
The decision to drop Turkey’s status comes as tension between Turkey’s president Recep Tayyip Erdogan and Mr Trump continues.
The USTR first announced a review of Turkey’s participation in the programme in August, shortly after the eruption of a bitter row between Ankara and Washington over a detained US pastor.
The preacher, Andrew Brunson, was later released following a painful meltdown in the Turkish lira.
Relations between Mr Trump and Mr Erdogan have since become less fraught but remain volatile, with disagreements over the US withdrawal from Syria and Turkey’s plan to purchase an air defence system from Russia.
In its statement, the USTR said Turkey was graduating from the GSP programme due to its “increase in gross national income per capita, declining poverty rates, and export diversification”.
Turkey’s removal will only hit a small portion of the country’s exports. The US imported $1.66bn from Turkey under the scheme in 2017, according to USTR figures, while Turkey’s total global exports for that year were $157bn.
But Ruhsar Pekcan, Turkey’s trade minster, said in a tweet: “Unfortunately, this decision conflicts with our mutual objective of reaching a bilateral trade volume of $75bn that had been announced by both governments. The decision will also negatively affect US SMEs and manufacturers.”
The changes will not take effect until at least 60 days after notifications are made to the US Congress and to the governments of India and Turkey.
