Friday, September 8 2006 12:40 Hrs (IST) - World Time -

Washington: The US Chamber and its partners, including the US-India Business Council, have asked the Bush administration to continue to offer India and Brazil trade benefits under its Generalised System of Preferences (GSP).

They made the plea in a letter to the US Trade Representative (USTR), which is currently looking at a proposal to limit, suspend or withdraw trade preferences to India and a dozen other countries as part of a major GSP review ordered after the collapse of world trade talks.

"GSP is an important tool facilitating trade, one that benefits companies and consumers, and which strengthens the relationship between the US and our partners," said US Chamber Vice President John Murphy in the letter on behalf of the business associations.

"By offering a helping hand to partners in the developing world, GSP allows the US to develop diverse low-cost sources of inputs for our manufacturing base while strengthening protection of US intellectual property," he said.

GSP also creates a positive economic interdependence based on mutual interest that improves the overall environment for US exporters and investors in some of the fastest growing countries in the developing world.

For these reasons, our organisations strongly urge the GSP subcommittee to support the continuation of the GSP programme and voice our support for the continued inclusion of Brazil and India in the programme, the letter said.

The letter was also signed by the American Association of Chambers of Commerce in Latin America and the Brazil-US Business Council, in partnership with the American Chambers of Commerce in Sao Paulo and Rio de Janeiro.

As US companies face increasing competition in their home market and abroad, GSP helps level the playing field and keep US manufactured goods competitive, the letter said.

Indeed, GSP strengthens US competitiveness by providing reliable low-cost inputs for US industry, including many chemicals, minerals, and climate specific fruits and vegetable products imported under the programme.

GSP imports of automotive engine parts from Brazil and PET resin from India are telling examples of the importance of the programme for US industry. The US automotive industry benefits from being able to import engine parts from Brazil duty free under the programme.

In a low-margin business like the auto industry, the absence of tariffs on these products makes an important difference as the US auto sector restructures itself to maintain its competitiveness and profitability, the letter said.

For the food, beverage, and consumer products industry, GSP provides duty free imports of Bottle-Grade PET Resin from India used for packaging a wide range of consumer goods, such as carbonated soft drinks, juices, bottled water, salad dressing, peanut butter, shampoo, and liquid soap.

Exclusion of GSP benefits from India will effectively raise the tariff from zero to 6.5 percent, with sourcing likely switching to more developed or industrialised exporters.

"In a competitive global economy, this may translate into higher production costs, shifts in material sourcing, and a whole host of hidden costs associated with the necessary adjustments within the industry," it said.

The ultimate result will be increased prices for consumers and potentially negative economic consequences for developing-country exporters. Maintaining GSP benefits helps keep US industry competitive by continuing longstanding, mutually beneficial sourcing relationships fostered and sustained by the GSP programme.

Indeed, rather than sending a message about the importance of constructive engagement on the WTO, a decision not to renew GSP benefits primarily punishes US firms.

A positive factor in US ties to Brazil and India GSP has been an important factor in promoting stronger commercial and diplomatic ties with Brazil and India.

These countries are among the most important emerging markets for US business worldwide, and the commercial ties forged by the programme have helped create a more welcoming environment for US goods and investments, the letter said.

Both India and Brazil have progressed considerably towards becoming upper middle-income economies when viewed from a GDP per capita basis, but they still suffer from extreme income disparities between the rich and poor, as well as stark internal differences in the level of economic development between various regions.

Together, US imports from Brazil and India under the GSP programme account for only $7.81 billion, or 0.22 percent and 0.25 percent of total US imports in 2005 respectively, it noted in a cost-benefit analysis of GSP.

Clearly, the benefits of the GSP programme for US foreign policy and commercial interests are substantial. Removing GSP benefits from Brazil and India will only serve to strengthen the hand of the forces overseas that argue against greater ties with the United States at a time when we need to solidify relationships with these important partners, the letter said.