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.