Category International Trade

How will reclassification affect India?

The removal of India from the U.S.’ list of developing nations can negatively impact Indian trade with regard to the U.S. With the classification as a developed country, India may lose other trade benefits given as part of the GSP. India is no longer eligible for preferential treatment against CVD investigations and de minimis thresholds. With many countries having been stripped of the benefits, international trade, and global economy will slow down.

The U.S. has eliminated its special preferences for a list of self-declared developing countries. Apart from India, this list includes Albania, Argentina, Armenia, Brazil, Bulgaria, China, Colombia, Costa Rica, Georgia, Hong Kong, Indonesia, Kazakhstan, the Kyrgyz Republic, Malaysia, Moldova, Montenegro, North Macedonia, Romania, Singapore, South Africa, South Korea, Thailand, Ukraine, and Vietnam.


Picture Credit : Google

Why was Indian removed from the ‘developing countries’ list?

  • The U.S. said that it removed those countries that have a per capita Gross National Income of above $12,375 as per the World Bank data; those that account for more than 0.5% of the global trade share; and those that are members of either Economic, Cooperation and Development (OECD), the European Union (EU), or the Group of Twenty (G20).
  • India was removed from the list on account of it being a G-20 member and having a share of 0.5% or more of world trade. India’s share in global exports was 1.67% in 2018. In global imports, it was 2.57%.
  • However, India’s per capita GNI is below $12,375. Despite this, the U.S. has reclassified India as a ‘developed country’.
  • Further, the U.S. administration under President Trump has repeatedly accused fast-growing countries such as India and China of wrongly claiming trade benefits that are reserved for the truly developing countries.


Picture Credit : Google

What is CVD?

Countervailing Duties (CVDs) are tariffs levied on imported goods when such products enjoy benefits like export subsidies in the country of their origin. This regulation, under WTO rules, is meant to neutralize the negative effects that subsidies on the production of a good in one country have on the same industry in the importing country. Simply put, CVD is a tax levied by a country on imports. For instance, let’s assume that India is importing a particular brand of mobile phone from China. This product enjoys export subsidies from the Chinese government, making its price lower than similar products made in India and available in the Indian market. This will be unfavouarble to the Indian product. To overcome this, the Government of India can impose a countervailing duty on Chinese imports.

According to the WTO rules, a country can determine CVD charges. However, a CVD investigation is ruled out if the subsidy is de minimis (too small to warrant concern) or if import volumes are negligible. The de minimis thresholds and import volume allowance are more relaxed for developing and least-developed countries.

The de minimis standard is usually a subsidy of 1% or less and valorem (proportion to the estimated value of goods) and 2% in special cases. India was eligible for the 2% de minimus standard until the USTR reclassification. (It is to be noted the WTO allows countries to declare themselves ‘developing’, ‘developed’ or least-developed countries. India has declared itself a developing country. The self-declaration, however, can be challenged by member states.


Picture Credit : Google

What does the ‘developing countries’ classification mean?

The office of the United States Trade Representative (USTR) maintains a list of countries that it classifies as ‘developing’, ‘developed’, and ‘least-developed’ for trade purposes. Countries categorized as ‘developing’ receive preferential trade benefits in export of certain goods to the U.S. The Generalized System of Preferences (GSP), a trade preference programme of the United States launched in 1976, provides opportunities for ‘developing’ countries to ‘use trade to grow their economies out o poverty’. That is, the GSP is a preferential tariff system, extended by developed countries to developing countries, that allows zero or concessional tariff on imports from developing countries into the U.S. The rule comes under the purview of the World Trade Organisation. Other developed countries such as the EU and Japan also offer the GSP.


Picture Credit : Google

What is USTR?

On February10, the office of the United States Trade Representative (UST) eliminated a host of countries including India from its list of ‘developing economies’ and reclassified them as ‘developed countries’. But that is not something to be happy about. Because India (and the other countries) stands to lose certain trade benefits such as preferential treatment with respect to countervailing duty (CVD) investigations.

The Office of the U.S. Trade Representative (USTR) is responsible for developing and coordinating U.S. international trade, commodity, and direct investment policy, and overseeing negotiations with other countries.


Picture Credit : Google