The US wants to roll back a decades-old system which gave certain Indian and Turkish exports duty-free access to its market.

The timing of the announcement has raised some eyebrows as Turkey and India prepare for elections in a few weeks.
The timing of the announcement has raised some eyebrows as Turkey and India prepare for elections in a few weeks. (AP)

The US has decided to exclude Turkey and India from its Generalised System of Preferences (GSP), which allows smaller economies to sell some of their goods in developed markets by paying very little or no import duty. 

Washington says Turkey’s economy is much more developed than when the system was first introduced in the 1970s. But Turkey criticised the decision with its trade minister Ruhsar Pekcan saying the move had violated a "mutual objective of reaching a bilateral trade volume of $75 billion."

India has been targeted because it has shut its market to many American products. 

GSP, which the European Union also offers, has helped lift developing countries such as Bangladesh and India. Duty-free access makes products cheaper and helps manufacturers from such countries by giving them access to customers in wealthy nations. 

The removal of GSP status, which comes after a review process was started last year, will make it difficult for the affected Turkish and Indian exporters to sell their products at competitive prices. 

Its implementation can take two months. 

US President Donald Trump has taken multiple steps to cut his country’s trade deficit with rest of the world and promised to bring home manufacturing jobs. 

The timing of the announcement has raised some eyebrows as Turkey and India prepare for elections in a few weeks. 

Turkey and India won’t face any significant financial backlash because of this measure as they have both diversified their production base over the years, making products and services that do not benefit from duty-free access to the US. 

Overall, Turkey won’t face any major blowback.

Turkey’s total exports in 2018 were $168 billion and only $8.3 billion went to the US, according to Turkstat. That is 4.9 percent of its total exports. 

Out of this, a very small part is exported to the US under the GSP programme. In 2017 that was around $1.66 billion. 

But experts say it is not the actual size of the exports but the specific sectors that will come out as losers. 

“The situation can be delicate in case of Turkey because it’s exporting some of its agricultural products under the programme,” Professor Erdal Yalcin of Konstanz University of Applied Sciences told TRT World.

“Products like cotton and sugar can be affected. Turkey exports something like $200 million worth of sugar to the US under GSP.” 

Another fallout for Turkey would be the relative weakening of its trade balance. “The US is among the few countries with which Turkey has a positive trade balance. That might change now.”

The US and Turkey have argued in recent months over a proposed safe zone in Syria among other issues. 

Last year, the Trump administration increased duties on Turkish steel imports and aluminium products, battering its currency, the lira. 

“Unfortunately, this decision conflicts with our mutual objective of reaching a bilateral trade volume of $75 billion that had been announced by both governments,” Ruhsar Pekcan, Turkey’s trade minister, said on Twitter.

Some American businesses, such as its wheat exporters who have found it hard to undercut the price Turkish flour on the international market, have also lobbied for withdrawal of the GSP status as a punishment. 

India is going to take a much bigger hit as it is the top beneficiary of the GSP programme. It exports around $5.6 billion worth of products such as meat, fisheries and auto parts, under the preferential deal. 

The US is India’s largest export market, accounting for $48.6 billion in 2017, according to the Office of the United States Trade Representative. 

India’s commerce secretary Anup Wadhawan insists the impact won’t be as severe as is being portrayed. “The total GSP benefits amount to about $190 million on overall exports of $5.6 billion,” he told a press conference.

The decision will hit small-scale Indian manufacturers as GSP mostly covers intermediary low-tech products such as shopping bags that are no longer manufactured in the US. 

Source: TRTWorld and agencies