The US decision to withdraw GSP preferences to India has come about as a result of the change in foreign direct investment rules in India. The tightened norms that came into effect on February 1 place several restrictions on e-commerce companies, including Walmart and Amazon. Walmart has a reputation of killing small retail businesses with ultra-low prices, a concern that probably influenced India’s decision to tighten FDI rules. While the FDI policy might be irreversible, economic diplomacy can still defuse the situation and prevent the removal of the GSP benefits.

Tensions escalated when India, in response to America’s 25 per cent tariff hikes on steel and 10 per cent levies on aluminium, immediately accused it of unfair trade practices, and, seeking to signal a muscular approach, threatened retaliatory tariffs on US imports.

India’s GSP status came under review after the US medical and dairy industries complained that India was not providing them equitable and reasonable access to its market. India’s use of price control measures against imported drugs and medical devices has grown noticeably. Cardiac stents were put under price controls in February 2016 and knee implants attracted similar action in August 2017, after which trade margins for many medical devices are sought to be capped. US manufacturers complain that in doing so, India has meted out differential treatment to them vis-à-vis domestic players.