Generalised System of Preferences
14th Feb, 2019
- United States federal government is planning to withdraw Generalised System of Preferences (GSP) for Indian goods, a move that could hurt the Indian businesses.
- GSP allows India to export certain kinds of goods to US markets duty free, therefore make them more attractive to retailers and buyers in the US market.
More on news
- The trigger for the latest downturn in trade ties is India’s new rules on e-commerce that restrict the way Amazon and Walmart-backed Flipkart do business in a rapidly growing online market set to touch $200 billion by 2027.
- India could lose a vital U.S. trade concession, under which it enjoys zero tariffs on $5.6 billion of exports to the United States, amid a widening dispute over its trade and investment policies.
- India is the world’s largest beneficiary of a scheme that has been in force since the 1970s.
What is Generalised System of Preferences (GSP)?
- It is a preferential arrangement in the sense that it allows concessional low/zero tariff imports from developing countries to developed countries (also known as preference receiving countries or beneficiary countries).
- It involves reduced/zero tariffs of eligible products exported by beneficiary countries to the markets of GSP providing countries.
- The US has a strong GSP regime for developing countries since its launch in 1976, by the Trade Act of 1974.
- The GSP program has effective dates which are specified in relevant legislation, thereby requiring periodical reauthorization in order to remain in effect.
GSP at Global Level
- GSP instituted in 1971 under the aegis of UNCTAD, has contributed over the years to creating an enabling trading environment for developing countries.
- 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.
- Following the WTO Hong Kong Ministerial Decision of UNCTAD in 2005 the members agreed that developed countries and developing countries in a position to do so would grant duty-free and quota-free market access for exports of Least Developed Countries(LDC).
- Subsequent ministerial decisions also reaffirmed the continued importance of this issue for LDCs' trade and development prospects.
- The provision and utilization of trade preferences is a key goal the Istanbul Program of Actions adopted at the UN LDC IV in 2013, as further reaffirmed in SDGs Goal 17.
Who are the beneficiaries under GSP?
- The beneficiaries of GSP are around 120 developing countries. As of 2017, India and Brazil were the major beneficiaries in terms of export volume realized 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.
- According to the US Trade Representative Office website, GSP promotes sustainable development in beneficiary countries by helping these countries to increase and diversify their trade with the United States.
Which are the product groups covered under GSP?
- The products covered under GSP are mainly agricultural products including animal husbandry, meat and fisheries and handicraft products. These products are generally the specialized products of the developing countries.
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.
- India exports nearly 1,937 products to the USA under GSP.
- According to the Washington Post, 90 percent of Indian/Brazilian exports to America face normal US tariffs and hence will remain unaffected from the exit of the GSP program.
- Removal of GSP indicates a tough trade position by the US; especially for countries like India who benefited much from the scheme.