Monday’s move comes as trade tensions between the United States and India mount. The U.S. is trying to rework pacts with a number of other countries as well, including China. Trump has said weak deals have cost millions of U.S. jobs and has vowed to cut U.S. trade deficits.

India played down the impact, saying it was keeping retaliatory tariffs out of its talks with the U.S., but the opposition could seize on the issue to embarrass Prime Minister Narendra Modi ahead of general elections this year.

Trump has repeatedly called out India for its high tariffs, and U.S. trade officials said scrapping the concessions would take at least 60 days after notifications to Congress and the Indian government.

“I am taking this step because, after intensive engagement between the United States and the government of India, I have determined that India has not assured the United States that it will provide equitable and reasonable access to the markets of India,” Trump told congressional leaders in a letter.

India is the world’s largest beneficiary of the Generalized System of Preferences (GSP), which dates from the 1970s, and ending its participation would be the strongest punitive action the United States has taken against the country since Trump took office.

Reuters last month reported the planned U.S. action, which comes as the United States and China appear close to a deal to roll back U.S. tariffs on at least $200 billion worth of Chinese goods (all figures US$).

“Discussions are on with the United States, and given cordial and strong ties, (we are) keeping retaliatory tariffs out of it,” Commerce Secretary Anup Wadhawan said in New Delhi.

The preferential treatment brought India an annual “actual benefit” of just $190 million, he told reporters.

Of the 3,700 products covered, India used the concession for just 1,784, Wadhawan added.

“The benefit to industry is low, U.S. tariffs are already low,” said another government official, who spoke on condition of anonymity. “GSP is more symbolic of the strategic relationship, not in value terms.”

Still, some expect the move to ratchet up pressure on India to address U.S. concerns.

“The Indian government hasn’t engaged enough to address market access issues,” said Chuck Grassley, a Republican from Iowa and chairman of the Senate finance committee. “For the sake of the many Americans and Indians who relied on GSP benefits, I hope that India will work to quickly address these legitimate concerns.”

Political price

Despite its limited impact, the GSP removal could hurt Modi’s Hindu nationalist ruling party ahead of the election, expected in the next couple of months.

“It can become a political issue in an election year,” said the official who declined to be named.

Modi’s own relationship with Trump has been limited, with their meetings less frequent than those of Chinese President Xi Jinping with Trump, for example.

Trade ties with the United States suffered after India adopted new rules on e-commerce curbing how internet retail majors Amazon.com and Walmart-backed Flipkart do business.

That followed a drive by New Delhi to force global card payments companies such as Mastercard and Visa to move their data to India and higher tariffs on electronic products and smartphones.

In 2017, the U.S. protested against India’s decision to cap prices of medical devices.

Last week, India delayed until April 1 higher tariffs on some U.S. imports announced in response to a U.S. refusal to exempt it from new steel and aluminum tariffs.

“Despite intensive engagement, India has failed to take the necessary steps to meet the GSP criterion,” USTR said. The agency estimates the United States ran a goods and services trade deficit of $27.3 billion with India in 2017.

India’s top GSP exports to the United States in 2017 included motor vehicle parts, ferro alloys, precious metal jewellery, building stone, insulated cables and wires, said business grouping the Confederation of Indian Industry.

“Some industries which are highly export-oriented to the American markets would be impacted, like pharma or textiles,” said Siddharth Sedani, equity advisory head at brokerage Anand Rathi.

India’s falling trade deficit with the United States is estimated to have narrowed by more than $4 billion in 2018, the trade ministry said, adding it would fall further on growing demand for energy and civilian aircraft.

— Reporting for Reuters by Eric Beech and Neha Dasgupta; additional reporting by Manoj Kumar, Krishna N. Das and Aditya Kalra in New Delhi and Chris Prentice in New York; writing by Sanjeev Miglani.

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The Senate voted 68-32, with 44 Democrats joining 22 Republicans and two independents to pass the sweeping bill, which is more than a year overdue. Congressional negotiations bogged down repeatedly on a host of issues, from the size of cuts to the food stamp program to how best to provide income supports to dairy farmers.

“This was hard fought. It was as complex an effort as I have ever seen and I have been on the Agriculture Committee for close to 40 years,” Democratic Senator Patrick Leahy of Vermont said.

Last week the House of Representatives passed the legislation by a wide margin. [Related story]

The White House has said Obama would sign the bill, which affects about 16 million jobs in the country’s agricultural sector and can have an impact on the business landscape for major agricultural companies.

“The farm bill isn’t perfect — but on the whole, it will make a positive difference not only for the rural economies that grow America’s food, but for our nation,” Obama said in statement.

The Congressional Budget Office says the legislation will save $16.6 billion over 10 years compared to current funding. Using a different scoring, congressional leaders put the savings at $23 billion (all figures US$).

About $8 billion in savings over 10 years comes from cuts to the Supplemental Nutrition Assistance Program, commonly known as food stamps, which accounts for nearly 80 per cent of the bill’s spending. The program provides funds to about 47 million low-income people to buy food.

The food stamp cut was well below the $40 billion reduction advocated by the Republican-led House, but still double the amount originally supported by the Democratic-run Senate.

Conservative pressure groups Heritage Action and Club for Growth said the bill was too expensive and had urged a “no” vote. The groups said they would include the results in their scorecards of members’ voting records for 2014.

Liberal lawmakers and advocates for the poor said the food stamp reduction was too steep at time of relatively high unemployment.

“Any funding reduction to this program… will make it more difficult for some of the most vulnerable Americans, including seniors and low-income families with children, to afford a healthy diet,” said American Heart Association CEO Nancy Brown.

The legislation ends so-called direct payment subsidies, which for years have been doled out to farmers and landowners — to the tune of some $5 billion a year — regardless of whether there is a need for support and whether they actually grew crops or raised livestock.

Instead, agriculture insurance programs would be expanded to help producers manage risk. The bill also would establish permanent disaster assistance for livestock producers.

U.S. Agriculture Secretary Tom Vilsack termed the bill “important to the entire nation” and a way to cement the progress made in rural America over the past five years, during which time farm income has reached record highs.

“The potential of new products, treatments and discoveries will be strengthened through new agricultural research. Renewed conservation efforts will protect our fields, forests and waters creating new tourism options,” Vilsack said.

— Reporting for Reuters by Eric Beech in Washington, D.C.

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“We’ve got a bill that makes sense, works for farmers and ranchers and consumers and families that need help, and protects our land and water and our wildlife,” Stabenow, chair of the Senate agriculture committee, told Reuters.

The Michigan Democrat said she was optimistic the bill would pass both chambers of Congress.

The agreement on a new five-year bill came after lawmakers spent weeks ironing out differences over food stamps, dairy price supports and other issues contained in earlier House and Senate legislation.

The bill is likely to be brought up for a vote in the House of Representatives “as early as this week,” according to a statement from Stabenow.

The House of Representatives will likely take action before its Republican leadership leaves town late on Wednesday for a three-day policy retreat.

A vote in the Senate could come as early as next week, Stabenow said. If both chambers pass the bill, it would go to President Barack Obama for his signature.

The White House last year threatened to veto any bill that contained deep cuts, advocated by House Republicans, to the supplemental nutrition assistance program, commonly known as food stamps.

Congressional aides have said that the bipartisan agreement would include about $9 billion in cuts over a decade, mostly by closing a loophole, well below the $40 billion advocated by the House, which would have been the largest cuts in a generation (all figures US$).

Food stamp savings “are reached without removing anyone” from the program, according to a statement from the offices of the four major farm bill negotiators.

Stabenow lauded the end of so-called direct payment subsidies, which for years have been paid out to farmers every year regardless of whether or not there is a need for support.

“We started at the beginning saying we were going to do away with direct payments, and save billions and instead put it into risk management to support farmers with crop insurance and disaster assistance. We’ve done that,” Stabenow told Reuters.

— Reporting for Reuters by Eric Beech; additional reporting for Reuters by David Lawder.

Related story:
Stopgap farm bill passes U.S. House, averts ‘dairy cliff,’ Dec. 14, 2013

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