What is Generalised System of Preferences?

The Generalized System of Preferences, or GSP, is a preferential tariff system which provides for a formal system of exemption from the more general rules of the World Trade Organisation (WTO). Specifically, it is a system of exemptions from the most favoured nation principle (MFN) that obliges WTO member countries to treat the imports of all other WTO member countries no worse than they treat the imports of their “most favored” trading partner. In essence, MFN requires WTO member countries to treat imports coming from all other WTO member countries equally, that is, by imposing equal tariffs on them. GSP exempts WTO member countries from MFN for the purpose of lowering tariffs for the least developed countries, without also lowering tariffs for rich countries.

Source: Wikipedia

Relevance.

December 2018 – The US wants India to remove or substantially reduce import tariffs on scores of Information, Communication and Technology products — including high-end mobile phones and smart watches — apart from rolling back the price curbs on medical equipment like stents.  The US is seeking to use its so-called generalised system of preference (GSP) regime —under which it allows imports of select products from a host of poor or developing countries, including India, at concessional duties — as a leverage to ask New Delhi to heed its demands.

Source: Financial Express

April 2018 – the Office of the United States Trade Representative (USTR) announced that it would review the GSP eligibility of India, Indonesia, and Kazakhstan. The proposed review for India was initiated in response to market access petitions filed by the U.S. dairy and medical device industries due to recent policy decisions in India, which were perceived as trade barriers.

Source: The Hindu

Criticism of GSP

Criticism has been leveled noting that most GSP programs are not completely generalized with respect to products, and this is by design. That is, they don’t cover products of greatest export interest to low-income developing countries lacking natural resources. In the United States and many other rich countries, domestic producers of “simple” manufactured goods, such as textiles, leather goods, ceramics, glass and steel, have long claimed that they could not compete with large quantities of imports. Thus, such products have been categorically excluded from GSP coverage under the U.S. and many other GSP programs. Critics assert that these excluded products are precisely the kinds of manufactures that most developing countries are able to export, the argument being that developing countries may not be able to efficiently produce things like locomotives or telecommunications satellites, but they can make shirts.

Source: Wikipedia

How India-US GSP helps US?

Most of the 3,500 Indian products imported by the U.S. under the GSP are raw materials or important intermediaries of value chains. In many cases, Indian exports are less-expensive, high-quality alternatives that reduce the costs of final products, thereby creating value that is subsequently exported the world over by U.S. companies or directly conveyed to the U.S. consumer. Indeed, this enables the U.S. economy to be more globally competitive.

In 2017, most of the top 10 GSP products exported by India to the U.S. were intermediate goods, many of which are not competitively produced in the U.S. given their lower role in manufacturing value chains. Thus, the benefits accruing to U.S. companies and consumers offset the relatively small concessions of the GSP programme.

How India-US GSP benefits India?

GSP allows Indian exporters a certain competitive edge and furthers the development of the country’s export base. It also allows India to integrate with global value chains (GVC) and hence, with global markets. These advantages provide opportunities for small enterprises and help in the overall livelihood creation endeavour in India.

Source: The Hindu