$5 Billion in Exports at Stake as India Defends Religious Stance on Dairy Import, Medical Price Caps

As trade minister Suresh Prabhu wraps up a recent visit to the Washington DC, The Wire breaks down India's attempts at convincing the Trump administration.

New Delhi: Six days from now, a stuffy US government committee will decide the fate of a little over $5 billion in Indian exports, and with it the economic prospects of thousands of local medium, small and micro enterprises (MSMEs).

India’s attempts at guarding against a negative outcome involves, in part, defending a 15-year-old religious stance that the American milk lobby says has prevented US dairy products from gaining “reasonable and equitable access” to the Indian market.

In recent months, the Donald Trump administration has turned its focus towards India’s continued eligibility under the Generalised System of Preferences (GSP) programme – a trade export initiative that provides low or zero duty access to over 3,500 products.

According to latest government data, exports from India to the US under GSP rose from $4.58 billion in 2015 to $5.58 billion in 2017.

The US government’s review has been egged on by two petitions filed by American lobby groups – the dairy industry and the other by the medical device sector – both of which believe that India should lose its GSP benefits as there are “Indian trade barriers” affecting exports in their sectors.

In the run-up to the June 19 hearing of the GSP subcommittee, the Indian government has unusually chosen to file public comments that make out its argument against both petitions and defend the usefulness of Indian exports to American industry.

“The quantity of Indian exports that avail of GSP benefits is not huge, but it is crucial because many of these exports are carried out by small and medium businesses and manufacturers. It’s also a question of optics, how does it look in a pre-election year that small Indian businesses suffer as a result of failed trade diplomacy,” a senior commerce ministry official who declined to be identified told The Wire.

As trade minister Suresh Prabhu wraps up a recent visit to the Washington DC, The Wire breaks down India’s attempts at convincing the Trump administration.

Holy cow

The National Milk Producers Federation and the US Dairy Export Council, two American lobby groups, believe that India shouldn’t be given a continued waiver because the country has for over a decade “opposed to complying with its existing WTO obligations for dairy products”.

In particular, the US dairy lobby believes that India has “maintained unscientific dairy certificate requirements for dairy imports” and has “refused extensive good-faith efforts to restore trade in dairy products between the US and India”.

Put simply, the crux of it is: the Indian government, since the Atal Bihari Vajpayee administration in 2003, has required that all imported dairy products be derived from animals that have never consumed anything containing “internal organs, blood meal, or tissues of ruminant origin”.

In the initial years, there were other, perhaps more scientific, concerns such as the question of whether dairy products needed to be treated to ensure the destruction of paratuberculosis.

Over the last eight years, however, the primary argument put forth by the Indian government has been that importing dairy products that were manufactured from the milk of cattle feed on blood meal or “tissues of ruminant origin” would hurt religious sentiment.

In the UPA-I and II governments, successive agriculture ministers drew a parallel with the ‘Codex Alimentarius-recognised Islamic and Jewish dietary code’ (applicable for Halal and Kosher foods).

The Modi government, on the other hand, appears to be taking the stand that India’s position, “which is based on religious, cultural and moral grounds,” is in compliance with an arcane provision of the General Agreement on Tariffs and Trade (GATT), 1994. Specifically, it has argued that its stance on restricting US dairy imports is allowed under Article XX (a) of GATT, which allows members to adopt or enforce measures that are “necessary to protect public morals”.

The Indian government, since the Vajpayee administration in 2003, has required that all imported dairy products be derived from animals that have never consumed anything containing “internal organs, blood meal, or tissues of ruminant origin”. Credit: Pixabay

“India is committed to respect the religious and cultural beliefs of its people and it will be inappropriate to impute any other considerations to this decision. It is also emphasized that India has significant dairy import from many countries who have had no issues in complying with India’s requirements,” the Modi government’s brief, submitted to the GSP sub-committee, notes.

Health device 

The second American lobby group which has sent a petition to the United States Trade Representative is the Advanced Medical Technology Association (AdvaMed), which believes that India’s benefits under the GSP be withdrawn in light of the country’s failure to once again “provide equitable and reasonable access to its market for medical devices”.

Unlike dairy products, the medical device argument is rooted in more recent developments: specifically, AdvaMed is upset over India’s recent moves towards price controls on coronary stents and knee replacement implants, with signals that price caps for additional life-saving and life-improving medical devices may be forthcoming.

The Americans are on the less firm ground here: not only have the import of medical devices risen from Rs 610 crore in 2014-15 to Rs 740 crore in 2017-2018, around 25% of India’s import requirements are met from the US.

Their primary argument is that price caps prevent US manufacturers from being competitive and will inevitably see American imports reduce in the future as they continue.

India’s defence is crisp and logically sound: Not only is the Modi government’s position “based on providing its citizens with equitable and affordable access”, the large size of the country’s population and an increased requirement for medical devices means India will continue to be a large market. Most importantly, India’s price caps don’t single out American companies.

“It is submitted that India has not undertaken any unnecessary or discriminatory measures or steps to reduce access of US medical devices industry to Indian market. In addition, the Government of India has been open to carrying out discussions with all relevant stakeholders to arrive at a mutually beneficial and acceptable solution to the issues raised by AdvaMed,” the country’s defence notes.

MSMEs cry out for help

At least 60 small and medium businesses, manufacturers and intermediaries have also submitted comments to the GSP sub-committee. These firms include everything from makers of auto parts to terry cloth manufacturers.

Most importantly, their submissions make it clear that if GSP benefits are withdrawn, China is ready to swoop in and take in their place.

Consider one comment by a local Indian bicycle manufacturer, arguing for continued GSP benefits: “The bicycle industry is mostly localised in China and there is literally no other country which has a possibility of supplies of bicycles and parts at competitive prices. There needs to be a possibility of another country to stand up and supply parts to USA bicycle manufacturing Companies. Who can it be better than Indian Bicycle Industry?”.

Others stress how important they are to the American supply and value chain, indicating that only Indian MSMEs can help fill this bag.

The arguments of one local Indian bag manufacturer in this regard:

Please be noted that there are no Industries in the US for packing 25Kg & 50Kg bags which fall under 3923 and therefore the US is benefitted by Importing the same from countries like India.

Also that all industries in this category are in the Small Scale sector in India with a large base, and spread throughout the country. The same is with the carry Bags & shopping bags category falling under the same 3923. Most of the products from 3910 to the 3990 are all in the Small Scale & Micro sector. Meaning that the cost for the US to procure the products from India will be highly competitive and also that no such industries are operating in the US. Also that the US will give our small sector a boost.”