India out of GSP programme

Mains Paper 2 : Bilateral, Regional and Global Groupings and agreements involving India |

From UPSC perspective, the following things are important :

Prelims level : GSP

Mains level : Implications of GSP status removal on India

The US has announced its intention to “terminate” India’s designation as a beneficiary of its Generalized System of Preferences (GSP) duty concession programme.

Why such move?

Under the programme, certain products can enter the US duty-free if beneficiary developing countries meet the eligibility criteria established by its Congress.
US said that India had failed to provide assurances to the US for “equitable and reasonable” access to its markets in numerous sectors.
US’s refers to India as a “very-high tariff nation” and demands for a “reciprocal tax” on goods from India.

What is GSP?

The GSP is a US trade preference programme designed to promote economic development by allowing duty-free entry for thousands of products from designated beneficiary countries.
The concept of GSP is very different from the concept of MFN as it provides equal treatment in the case of tariff being imposed by a nation.
But in case of GSP, differential tariff could be imposed by a nation on various country whether it is a developed country or a developing country.
Both the rules comes under the purview of WTO.
GSP provides tariff reduction for least developed countries but MFN is only for not discriminating among WTO members.

India and GSP

India has been the biggest beneficiary of the GSP regime and accounted for over a quarter of the goods that got duty-free access into the US in 2017.
Exports to the US from India under GSP — at $5.58 billion — were over 12 per cent of India’s total goods exports of $45.2 billion to the US that year.
The US goods trade deficit with India was $22.9 billion in 2017.
With India exporting $6.3 billion worth of goods to the US under GSP in 2018 and availing duty concession to the tune of only $240 million last year.

Impact of GSP withdrawal

Even after US withdrawal of GSP, India continues to enjoy tariff preference from many countries including Australia, Russia and Japan, as well as the European Union (EU), among others.
Indian exports to these countries was nearly five times the total exports to the US in 2018.
Within the group of countries that provided GSP benefit to India, exports to EU nations were highest, followed by the US, Japan, Russia and Australia, respectively.
As exports under GSP accounted for over 11 per cent of India’s total goods exports of $54.4 billion to the US last calendar year, the withdrawal could affect India’s competitiveness in exports.
Indian exports from US included organic chemicals, raw materials, iron, steel, furniture, aluminium and electrical machinery.

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