Generalized System of Preference (GSP)

Why in news: The U.S. should not terminate the GSP programme with India after the expiry of the 60-day notice period, a group of 25 influential American lawmakers urged the U.S. Trade Representative, warning that companies seeking to expand their exports to India could be hit.

What is Generalised System of Preferences (GSP)?

• The Generalized System of Preferences (GSP) is a U.S. trade program designed to promote economic growth in the developing world by providing preferential duty-free entry for up to 4,800 products from 129 designated beneficiary countries and territories.
• GSP was instituted on January 1, 1976, by the Trade Act of 1974.
• GSP has been given on non-reciprocal basis yet the US has linked it with market access and tariff reduction which is against the basic tenets of GSP.

What is the objective of GSP?

The objective of GSP was to give development support to poor countries by promoting exports from them into the developed countries. GSP promotes sustainable development in beneficiary countries by helping these countries to increase and diversify their trade with the United States.

Benefits of GSP:

• Indian exporters benefit indirectly – through the benefit that accrues to the importer by way of reduced tariff or duty free entry of eligible Indian products
• Reduction or removal of import duty on an Indian product makes it more competitive to the importer – other things (e.g. quality) being equal.
• This tariff preference helps new exporters to penetrate a market and established exporters to increase their market share and to improve upon the profit margins, in the donor country.

US Concern regarding GSP Continuation to developing countries:

• President Donald Trump’s case on what he calls “unequal tariffs” from India rests on the trade relationship in favour of India: Indian exports to the U.S. in 2017-18 stood at $47.9 billion, while imports were $26.7 billion.
• Trump Administration has criticized India for a range of unfair trading practices– decision on data localisation for all companies operating in India, and the more recent tightening norms for FDI in e-commerce have aggravated the situation.
• Sanitary and phytosanitary (SPS) barriers in India limit U.S. agricultural exports.

What is the impact of GSP withdrawal on India?

India exports nearly 50 products of the 94 products on which GSP benefits are stopped. The GSP removal will leave a reasonable impact on India as the country enjoyed preferential tariff on exports worth of nearly $ 5. 6 billion under the GSP route out of the total exports of $48 bn in 2017-18.

Removal of GSP indicate a tough trade position by the US; especially for countries like India who benefited much from the scheme. India is the 11th largest trade surplus country for the US and India enjoyed an annual trade surplus of $ 21 bn in 2017-18.

Sources: The Hindu.