India Out Of US’ Developing Nations List

On 10^th February, 2020, the office of the United States Trade Representatives (USTR) updated its list of developing and least-developed countries, removing India from the list of countries that are designated as developing.
The USTR has also updated its list of countries that are least-developed under the US countervailing duty (CVD) laws.
Now, India, along with several other countries has been barred from getting special preferences under the US CVD law.
Other countries removed from the list includes: Albania, Argentina, Armenia, Brazil, Bulgaria, China, Colombia, Costa Rica, Georgia, Hong Kong (SAR of China), Indonesia, Kazakhstan, the Kyrgyz Republic, Malaysia, Moldova, Montenegro, North Macedonia, Romania, Singapore, South Africa, South Korea, Thailand, Ukraine, and Vietnam.

In the Uruguay Round Agreements Act (URAA-1994), the US had amended the CVD law in order to confirm US obligations under the World Trade Organisation (WTO) Agreement on Subsidies and Countervailing Measures (SCM).
Under this SCM agreement, countries that had not yet reached the status of a developed country were entitled to special treatment for purposes of countervailing measures.
To harmonise the U.S. law with the WTO’s SCM Agreement, the USTR had, in 1998, come up with lists of countries classified as per their level of development. The list designated Subsidy Agreement countries eligible for special de minimis countervailable subsidy and negligible import volume standards under the CVD law.
USTR is also required to publish this list of designations and update it if necessary in the Federal Register.

The USTR used the following criteria to determine whether a country was eligible for the 2% de minimis standard:

Per capita Gross National Income(GNI)
Share of world trade
Other factors such as Organisation for Economic Co-operation and Development (OECD) membership or application for membership, EU membership, and Group of Twenty (G20) membership.

According to the USTR, the criterion of eligible countries has now turned obsolete.
The US had in January, 2019, proposed withdrawal of special rights and exemptions for emerging economies such as India and China, which are members of the Organisation for Economic Cooperation and Development (OECD), G20, classified as “high income” by the World Bank or account for more than 0.5% of global merchandise trade.
Further, for the purposes of the de minimis threshold, there will be no distinction between developing and least-developed countries, since both such countries will be subject to the same threshold.

Being a G-20 Member

The US removed India from the list on account of it being a member G-20, an international forum primarily consisting of developed nations.
Accordingly, India will be now considered as a developed country, even if its per capita GNI is below $12,375 or Rs 8.82 lakh.

Increased Global Trade Share

It is to be noted that the USTR office suspended India’s GSP benefits in June 2019.
GSP is given to countries with lower than 0.5 % share (as per US government estimates) in global trade.
But, India’s share in global exports was 1.67% while in global imports, it was 2.57%, making India ineligible for special preference.

End of GSP Benefits

Under the GSP, Indian exporters could export their products to the US tariff-free. However, with the change of rules, Indian exporters will no longer get this benefit.

India Open to Investigation

The CVD laws also allow the US to hold an investigation into the trade policies of other countries to determine whether they are harming the US trade. With India no longer in the list of beneficiaries, the US can now hold an investigation.
If the investigation finds that India’s policies allow exporters to sell their products in the US at a lower rate and consequently harm the domestic traders there, the US can impose CV duty, to make the Indian goods more expensive in the US markets.

Increase in Competition and Decrease Market Share

The move would have negative impact on Indian export as it will lead to increasing competition from low-cost rivals, and that surrendering GSP claims would mean handing away market share, impacting Indian market.

Duties that are imposed in order to counter the negative impact of import subsidies to protect domestic producers are called countervailing duties.
The objective of CVD is to nullify or eliminate the price advantage (low price) enjoyed by an imported product when it is given subsidies or exempted from domestic taxes in the country where they are manufactured.
These duties can be imposed under the specifications given by the WTO (World Trade Organization) after the investigation finds that exporters are engaged in dumping. These are also known as anti-dumping duties.