On the Legality of the United States Action of Terminating India’s GSP Status

AuthorR. Rajesh Babu
DOI10.1177/0015732519886795
Publication Date01 Feb 2020
SubjectArticles
07_FTR886795.indd Article
On the Legality of the
Foreign Trade Review
55(1) 119–129, 2020
United States Action
© 2020 Indian Institute of
Foreign Trade
of Terminating India’s
Reprints and permissions:
in.sagepub.com/journals-permissions-india
GSP Status
DOI: 10.1177/0015732519886795
journals.sagepub.com/home/ftr
R. Rajesh Babu1
Abstract
Since the US Presidential Proclamation terminating India status as a Generalized
System of Preferences (GSP) beneficiary with effect from 5 June 2019, questions
are raised on the WTO legitimacy of such an action. The US measure, which
appears to have a punitive element—a move precipitated by lack of reciprocity
from India by not providing ‘equitable and reasonable access’ for US products
in Indian markets—challenges the fundamentally premise of the GSP schemes.
Since the GSP schemes are established to provide economic and developmental
opportunities for developing countries, and once established must be adminis-
tered as per the 1979 General Agreement on Tariffs and Trade Enabling Clause,
meaning it must be on a ‘generalised’, ‘non-reciprocal’ and ‘non-discriminatory’
basis, can India raise a legitimate challenge against the US action at the WTO
Dispute Settlement Body? Or can the GSP schemes, being voluntary and uni-
laterally administered, be structured by developed countries as trade policy
tools with stringent trade and non-trade conditionalities? The decision of the
Appellate Body in European Communities—Tariff Preferences, the contested nature
of the Enabling Clause and the heterogeneous nature of developing countries at
the WTO makes the interpretation knotty. In this context, this article provides a
brief comment on the legal basis of the Enabling Clause in the WTO framework
and the legitimacy of the US action of termination of India from the beneficiary
status. Keeping aside the legal question, the author is also of the view that time is
ripe for India to consider ‘graduating’ itself from such preferential arrangements
and engage in binding obligations that are reciprocal and sustainable.
JEL Codes: K33, O24
1 Indian Institute of Management Calcutta, Kolkata, West Bengal, India.
Corresponding author:
R. Rajesh Babu, Professor of Law, Indian Institute of Management Calcutta, Kolkata, West Bengal
700104, India.
E-mail: rajeshbabu@iimcal.ac.in

120
Foreign Trade Review 55(1)
Keywords
GSP and India, enabling clause, US–India trade war
Introduction
The United States (US) vide Proclamation of 16 May 2019 terminated India from
the list of Generalized System of Preferences (GSP) beneficiary countries with
effect from 5 June 2019 (US Proclamation 9902 [Executive Office of the President,
2019]). India, till then the world’s largest beneficiary of the US preferential tariff
treatment under GSP programme, is expected to lose market access opportunities
for around 1921 items affecting $6.35 billion of exports from India. The US justi-
fied its action on the ground that India has not assured the US that ‘India will
provide equitable and reasonable access to its markets’. The US Commerce
Secretary substantiated the allegation by attributing India’s practices against US
products and services including high tariffs on motorcycles and telecommunica-
tion products, price control on medical devices such as coronary stents and knee
implant components, unfavourable treatment against US dairy products and unfair
rules against e-commerce companies and requirements for data localisation. India,
on its part, has imposed retaliatory duties on 28 US goods escalating trade tension
between the countries.
Since the US action appears to have a punitive element—a move precipitated
by lack of reciprocity from India by not providing ‘equitable and reasonable
access’ for US products in Indian markets—fundamentally challenges the basic
premise of the GSP schemes. Thus, questions are raised on the WTO legitimacy
of such US action. More specifically, since the GSP scheme is established to pro-
vide economic and developmental opportunities for the developing countries, and
once established must be administered as per the 1979 General Agreement on
Tariffs and Trade (GATT) Enabling Clause, meaning it must be on a ‘generalised’,
‘non-reciprocal’ and ‘non-discriminatory’ basis, can India raise a legitimate chal-
lenge against the US action at the WTO Dispute Settlement Body? Specifically,
since the US withdrawal of the GSP privilege is unilateral, owing to lack of ‘reci-
procity’ from India and continues to grant such access to other developing coun-
tries, can such an action be categorised as lacking in legitimacy under the WTO
non-discriminatory principle.
The author notes that historically, GSP schemes are structured by developed
countries as trade policy tools, which are voluntary and administered unilaterally
with stringent trade and non-trade conditionalities. Since the WTO (2004) Appellate
Body’s ruling in European Communities—Conditions for the Granting of Tariff
Preferences to Developing Countries (hereinafter EC—Tariff Preferences), prefer-
ence giving countries have considerable discretion to lawfully demand reciprocity
and impose discriminatory conditionalities on beneficiary countries for the latter to
qualify for GSP benefits, provided that such conditions have a nexus with the trade,
financial and development needs of the beneficiary countries. Given that develop-
ing countries in the WTO are not a homogeneous group and at different levels of

Babu 121
development, discrimination between developing countries in the context of GSP
scheme has become WTO consistent. In this context, this article in the remain parts
shall seek to first, look at the use of GSP as a policy tool, specifically in the context
of India; second, the legal basis of ‘generalised’, ‘non-reciprocal’ and ‘non-dis-
criminatory’ provision in the Enabling Clause; third, legal implication of the US
action of termination of India from the beneficiary status; and finally, offers some
concluding remarks. The author is of the opinion that time is ripe for India to con-
sider ‘graduating’ itself from such preferential arrangements and engage in binding
obligations that are reciprocal and sustainable in the long run.
GSP as a Trade Policy Tool
The GSP conceived by the United Nations Conference on Trade and Development
(UNCTAD) in the 1960s was primarily intended to promote economic growth and
development of low-income countries by fostering exports to industrialised coun-
tries (UNCTAD, 1968; Verwey, 1983, p. 395).1 This was structured by granting
preferential tariff (like reduced or zero tariffs) treatment to goods from developing
countries. Since this would require derogation from the Most Favoured Nation
(MFN) treatment obligation in Article I of the GATT, a 10-year waiver, permitting
such derogation within the GATT system, was adopted by the GATT Contracting
Parties through a Decision in 1971 (GATT, 1971 Decision). The 1979 Decision of
the GATT Contracting Parties, popularly known as the ‘Enabling Clause’, give a
permanent status to the 1971 GSP Decision (GATT, 1979 Decision). Since then,
the US and many other developed countries have voluntarily put in place GSP
...

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