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End of Indian GSP to US will not bring much benefit for Bangladesh

The latest announcement by the US government to review the Generalized System of Preferences (GSP) status of India may end $5.6 billion preferential trade. As India was one of the largest beneficiary countries of the GSP scheme in the US market now they may face new challenges to stay in the race of competition.

US INDIA GSP not benefited for BD
Figure 1: Indian RMG products under GSP worth only $17.97 million and this is not really going to favor Bangladesh grabbing US apparel market.

Bangladesh also once a GSP beneficiary country but the US suspended its GSP facilitates in the year 2013 in an excuse of poor working condition in the RMG sector. Both India and Bangladesh have a trade race to grab more business in the US market.

So, there may be a positive impact on Bangladesh exports to the US market after the withdrawal of GSP from Indian product. But how much benefit Bangladesh can grab or whether Bangladesh can be beneficiary at all? To get the answer let us dig deep.

India’s loss of GSP status is more a diplomatic rather economic

The bilateral trade agreement between the US and India was partially gone in favor of Indian products. Product from America never could get good entity in the Indian market because of many obligations and barriers from the market authority. The Indian government announced its own tariffs $235 million on US goods worth $1.4 billion and 150% tariff on imported whiskey.

Key items imported by India from the US almond and fresh apples worth $645 million and $165 million, respectively. India also strongly opposed the U.S.-led free trade agreement to support and easy excess of American e-retail giants like Amazon and Walmart-owned Flipkart.

According to US Trade Representative, in the year 2017, India has surplus trade to US market $21.2 billion under GSP facilities in the worth of business $5.6 billion.

Most of the trade analysts believe GSP withdrawal from Indian product can be a diplomatic move from the Trump administration.

Now both the country had a strategy to promote nationality and strongly oppose foreign product. Trump’s announcement “Buy American, Hire American” is a strong clash with Modi’s campaign to “Make in India.”

India benefiting from US GSP
Figure 2: Year-wise comparison of US and Indian trade. In the export-import trade, India was all time beneficiary. Source: Ministry of Commerce & Industry, Government of India.

Major Indian export to the US with GSP benefits

A report shown by the U.S. Trade and Tariff DataWeb, automobile vehicles and other engineering items from India became the largest beneficiary items in the US market under GSP category, followed by gems, jewelry, organic chemicals and plastics in the year 2018.

Ajay Sahai, the Director-General of the Federation of Indian Export Organizations told Reuters that Farm, marine and handicraft products are among India’s exports most likely to be hit for the withdrawal.

Ganesh Kumar Gupta, President, Federation of Indian Export Organizations, said The Economic Times of India, “The withdrawal will have a marginal impact as GSP tariff advantage of $190 million was less than 0.4% of India’s exports.”

Indian textile and apparel products that received GSP from the US 

The category in the apparel and textile products received preferential trade benefits are likely – Dyed, plain weave certified hand-loomed fabrics of cotton, containing 85 percent or more cotton by weight; plain weave certified hand-loomed fabrics of cotton, containing 85 percent or more cotton by weight, hand-loomed carpet and other textile floor coverings, not of pile construction, woven, made up of man-made textile materials.

The 15 categories of RMG product that currently enjoy GSP from the US worth $17.97 million which contribute only 0.46 percent to India’s apparel exports. From the 15 product Silk woven clothing for women comprises 58.5 percent of India’s total apparel trade under GSP. There are other products will see the moderate impact as shawls, scarves, mufflers, maintillas, veils, etc.

Indian GSP products to US
Figure 4: Top 5 Indian products exported under the GSP scheme (in $ mn). Source: Commerce Ministry of India.

Will Bangladesh be really beneficiary from the withdrawal?

Since India is a close competitor of Bangladesh in the textile and apparel sector, so the GSP withdrawal is treated as an opportunity to grab more market share by the Bangladeshi manufacturer.

But the trade analysts and economists think that there will be a little positive impact on Bangladesh apparel exports to the US market. Beyond the apparel sector, there is an opportunity to grow in the leather and footwear exports.

Indian GSP to US

Most of the analysts believe that the benefit of GSP on the Indian industry is very low. Here GSP is more symbolic of the strategic relationship between the US and India, not in value terms. As far as India is concerned, the decision may impact some small-scale of Indian manufacturers as GSP mostly covers intermediary low-tech products.

In this regard, Bangladesh apparel manufacturer may not be a real beneficiary from the GSP withdrawal by the USA from the Indian product. Indian RMG products under GSP worth only $17.97 million and this is not really going to favor Bangladesh grabbing US apparel market. Even 15 Indian RMG products that received GSP tariff are not matched with Bangladesh product type. That means Bangladesh may not be really beneficiary from the Tramps announcement of the removal of GSP.

Dr. Rubana Huq. President, BGMEA, told Textile Today that there will be little impact on Indian export and Bangladesh also will not get much benefit from the withdrawal. She says, “It’s not even 100 million USD that India lost GSP on.”

“I am not sure either if India uses to get benefits in apparels or not. If yes; then, of course, Bangladesh will be benefited but not much as Vietnam is getting preferential duty status from the USA for last few years, so Buyers will be interested for another duty-free sourcing country rather than pay the extra duty,” Ehsan Fazlee Shamim, 2nd Vice President BKMEA, told Textile Today.

Shafiur Rahman, Regional Operations Manager, G-Star Raw, said Textile Today –“Sure, the impact will be there but it will be very little. First of all, there are lots of Indian apparels manufacturing units located in Bangladesh who will enjoy benefits as priority, than others? Surely small additional business for BD apparel makers.”

“We are talking about 6.35 billion USD exports from India, benefits were 190 million USD only and also for different products groups. So, the impact will very little,” Shafiur Rahman added.

International market researchers think Bangladesh has to concentrate over product development and on diversifying its goods to grab the global market including the US.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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