- US President
Donald Trump has said that he intends to end India’s
preferential trade treatment under
generalized system of preferences (GSP)
- Trump, who has
vowed to reduce US trade deficits, has repeatedly called out India for its
high tariffs. US claiming that New Delhi has failed
to assure the US of “equitable and reasonable” access to its markets, a
move India will not have a “significant impact” on its exports to America.
move can be a big blow for India’s competitiveness in items groups such as
garments, engineering and intermediary goods in the American market.
Generalized System of Preferences?
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.
- The GSP, instituted in 1971 under the aegis of UNCTAD, has
contributed over the years to creating an enabling trading environment for
- It involves reduced/zero tariffs of eligible
products exported by beneficiary countries to the markets of GSP providing
Beneficiaries of GSP:
- The following 13 countries grant GSP preferences: Australia,
Belarus, Canada, the European Union, Iceland, Japan, Kazakhstan, New
Zealand, Norway, the Russian Federation, Switzerland, Turkey and the
United States of America.
beneficiaries of GSP are around 120 developing countries. As on December
2018, India and Brazil were the major beneficiaries in terms of export
volume realised under GSP.
- Imports from
China and some developing countries are ineligible for GSP benefits. The
beneficiaries and products covered under the scheme are revised annually.
Objective of GSP:
- The main
objective is to give development support to poor countries by promoting
exports from them into the developed countries.
- According to
the US Trade Representative Office (USTR), GSP promotes sustainable
development in beneficiary countries by helping these countries increase
and diversify their trade with the United States. “GSP provide
opportunities for many of the world’s poorest countries to use trade to
grow their economies and climb out of poverty,” it reads.
- According to
the USTR, “GSP also boosts American competitiveness by reducing costs of
imported inputs used by US companies to manufacture goods in the United
How has GPS benefitted India?
- The benefits amount to a saving of
around $200 million for India, according to the latest commerce ministry
- India was getting a tariff
preference on 5,111 products, or what are called tariff lines, out of 18,770
tariff lines in the US.
- However, the tariff advantage was
4 per cent and above on only 2,165 tariff lines.
GSP and usual trade agreements under WTO:
the normal trade laws, the WTO members must give equal preferences to
trade partners. There should not be any discrimination between countries.
This trade rule under the WTO is called the Most Favored Nation (MFN)
- The MFN instructs
non-discrimination that any favorable treatment to a particular country.
At the same time, the WTO allows members to give special and differential
treatment to from developing countries (like zero tariff imports). This is
an exemption for MFN. The MSP given by developed countries including the
US is an exception to MFN.
Advantages of GSP:
- Generally, developing countries
export agricultural products, manufactured and semi-manufactured products
which have a declining trend in the world market.
- Particularly agricultural products
have to be marketed in competition with the products of industrially
- As advanced countries make use of
sophisticated technology, their cost of production is comparatively cheap.
So, developing countries do not get remunerative prices for their export
- In view of these, developing
countries are allowed to compete on preferential basis. While imports of
products from developed countries are subject to normal rates of duties,
exports of developing countries would be more competitive.
- Challenges arise for
beneficiaries in fully exploiting the market access opportunities
available under these schemes, including in effectively meeting the rules
of origin requirements.
Disadvantages or limitations of GSP
In spite of the above advantages, GSP
suffers from certain limitations:
- The scope of GSP scheme is
limited. Only dutiable products are covered under this scheme. So, the
developing countries cannot take advantage of the GSP in respect of duty
free products. Export of duty free products by developing countries
- GSP gives only marginal relief to
the export of agricultural products. In many countries, agricultural
products are outside the purview of GSP.
- Even manufactured products like
textiles, leather products and petroleum products are not covered under
- Some of the GSP schemes limit the
volume of exports. Ceilings that limit the quantity of imports adversely
affect the export prospects of less developed countries
will the suspension impacts India?
- GSP is meant largely for those
export-oriented sectors that are labor-intensive. So, if it is withdrawn, it
will impact jobs. With the leaked NSSO data showing unemployment at a 45-year
high, this is an important factor.
- As the Federation of Indian Export
Organisations points it, India is predominantly exporting intermediate and
semi-manufactured goods to the US under the GSP. This has helped in
cost-effectiveness and price competitiveness of the US downstream industry —
that is, the manufacturing industry that uses inputs covered under GSP.
- Therefore, withdrawal of GSP will also
impact the competitiveness of many manufacturing sectors and will hit the
consumers at the same time.
- The US import price of most chemicals
products that constituted a large chunk of India’s exports is expected to
increase by about 5 per cent.
- The withdrawal of the GSP benefit will
also hit the import diversification strategy of US, which is keen to replace
China as the main supplier to other developing countries of merchandise goods.
could lose US market share to rivals like Vietnam and Bangladesh, which
will continue have duty-free access.
next for India?
- India has made a final plea for continuation of the
generalized system of preferences (GSP) benefits currently under review
before the US Trade Representative (USTR), arguing that the cheaper
imports of intermediary products from India enable availability of
cost-effective and price-competitive inputs to the US downstream
industries and helps the US firms remain domestically and internationally
- India had threatened to drag the US to the dispute settlement
mechanism of the WTO, claiming withdrawal of the GSP benefits would be
“discriminatory, arbitrary and detrimental” to its developmental
- However, India on Saturday deferred till 18 September
tit-for-tat retaliatory tariffs against the 29 US products worth $235
million intended to counter a US move to unilaterally raise import duties
on Indian steel and aluminium products. India’s move is seen as a
conciliatory measure pending the GSP review and the upcoming “2+2″
dialogue among their foreign and defence ministers on 6 September of the
- The GSP remains a central aspect of the overall
trade engagement and must remain for Indian exporters keen to address the U.S.
- The U.S. should have considered continuing India’s
GSP eligibility as a gesture of goodwill that reaffirms its commitment to the
mutually beneficial relationship between our two countries. The India-U.S.
relationship has continued to grow stronger as India liberalizes along a
positive and steady trajectory.
- Today, both the US and India engage in countless
areas of mutual cooperation and have a convergence of views in a large number
of global issues. The relationship must not be seen through transactional prism
only. By doing this the broader strategic dimensions of the partnership could