Fiscal consolidation

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What is GSP?

Generalized System of Preferences (GSP) is a U.S. trade program (preferential tariff system) designed to promote economic growth in the developing world by providing preferential tariff reduction on various products. GSP is one of the biggest and oldest trade preference programs, and it aims to provide opportunities for many of the world’s poorest countries to use trade to grow their economy. It also helps Americans companies stay competitive by reducing cost of import.

At present GSP is providing preferential duty-free entry for up to 4,800 products from 129 designated beneficiary countries and territories

The criteria for inclusion in the GSP program include factors such as providing the US with equitable and reasonable market access, respecting arbitral awards in favour of US citizens or corporations, combating child labour, providing adequate and effective intellectual property protection, and respecting internationally recognised worker rights, among others.

US can remove countries from its GSP program if it feels like it is taking advantage in its bilateral trade or if country has advanced in economics development.

Impact on tariff on trade

Tariffs are tax/duty placed by importing country on goods. They raise the price of the good and thus making it uncompetitive with other players, and leading to decline in import.

Tariffs are often imposed to safeguard local producers. For example: To safeguard Indian farmers, govt has imposed import duty of 40% on wheat.

tariffs

Difference between MFN and GSP

Read more: What is MFN status

Under MFN, all countries under WTO need to give equal preferential trade to its member countries. There shall not be any trade discrimination towards any member country.

GSP on the other hand, allow countries to provide preferential trade treatment to and from developing countries (like zero import). The broader objective of GSP is decrease poverty and help in exports from poorer countries.

GSP with India

During FY  2017-18, India was the largest beneficiary of the GSP program with $5.6 bn worth of exports to the US being given duty free status. The bilateral trade between India and the US stood at $74.5 billion in 2017-18. However, the numbers are skewed in India’s favour. For instance, India reportedly imported items worth $26.3 billion from the US in FY19 (April-December) but posted a total export of $38.8 billion. India is the 11th largest trade surplus country for the US and India enjoyed an annual trade surplus of $ 21.5 bn in 2017-18.

Removal of India from GSP

As on June 2019, US have terminated India’s designation as a beneficiary developing nation under the key GSP (Generalised System of Preference) trade program.

Conclusion

Industry federations in India have played down the GSP suspension. According to them, it was suspended due to India’ economics advancement in recent years. Some businesses are asking for quid pro quid measures like increasing tariff on US import. Govt. of India is indulged in diplomatically solving this situation currently.

Essay Questions for you

  • How US tariff withdrawal affects India and how should India be prepared for this?
  • Has India improved in its economics situation and how world look at it?
  • Does tariff help to developing countries or for donor countries?
  • Write a note on the generalised system of preferences (GSP) system and its impact on India

You can post your essay to below discussion thread. Our team will evaluate and share you feedback.

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