How the US withdrawal of GSP could hit India's garments exports

If readymade garments are also targeted, the impact would be huge as 30-35% of the merchandise in this space goes to the US

US President Donald Trump plans to end the preferential trade status granted to India may have negative impact on textile exports from the country.

Normally, developed countries offer import duty sops to underdeveloped and developing ones for import of goods. These incentives are not available to other developed countries from whom the goods are being sourced. Such a sustem of preferential treatment to developing countries is known as generalized system of preferences (GSP) in trade parlance.

“The existing list of products for withdrawal of GPS may not have a major impact on India’s garments exports. But, if the list is expanded to cover India’s readymade garments (RMG) also, then the impact would be big as 30-35 per cent of India’s RMG exports go to the United States,” said Rahul Mehta, President of the Clothing Manufacturers Association of India (CMAI).

Industry experts said that while the impact would be marginal, under the current circumstances it would not be good as exports are already dropping. They have also said Centre should compensate the price increase through susbidy or incentives and should learn from the US when it comes to protectionism.

According to the Apparel Export Promotion Council (AEPC), the US imports $586.58 million worth of RMG products under 15 categories that currently enjoy GSP. India's share of this pie is $17.97 million. 

The MFN (most favoured nation) tariff in 15 products varies from 0.86 per cent to 14.6 per cent in which India gets duty access with 100 per cent margin of preference. 

It may be noted that these 15 products contribute to only 0.46% of India’s apparel exports. The bulk of the benefit is concentrated on Woven silk dresses for women, which make up 58.5 per cent of India's total trade under GSP. 

AEPC has identified, on the basis of current trade with US, that GSP withdrawal on as many as 11 products of the 15 may have a negligible impact on India’s apparel exports to US.

The high impact would be on women's or girls dresses, not knitted or crocheted, containing 70 per cent or more by weight of silk or silk waste. This, APEC says, should be retained.

The moderate impact will be on shawls, scarves, mufflers, maintillas, veils and the like, not knitted or crocheted, containing 70 per cent or more silk or silk waste.

Tirupur Exporters Association (TEA's) President Raja M Shanmugam said that though the impact seems to be minimal for this sector, which is the second largest employment generator in the country, even the minimarl would lead to hundreds of job losses.

He urged the Centre to help the industry, which will see price increase if the US decide to withdraw the status, by way of incentives. He also said that the Government should look at learning from the US on how they are domestic industries, through protectionsim approach.