Generalised System of Preferences

Context: 

  • Recently United States has decided to “terminate” India’s designation as a beneficiary of its Generalised System of Preferences (GSP).

What made US announce this?

  • The US observed that India has implemented a wide array of trade barriers that create serious negative effects on United States commerce.
  • Despite intensive engagement, India has failed to take the necessary steps to meet the GSP criterion.

Background:

  • The US had launched an eligibility review of India’s compliance with the GSP market access criterion in April 2018, following concerns raised by its medical devices and dairy industry.
  • The Indian government’s attempts to arrive at a “balanced” package that would address the US’s concerns and protect the Indian public’s welfare were not successful.
  • In 2017, India had capped prices of cardiac stents and knee implants, slashing these over 70% and 60% respectively. The move impacted US giants like Abbott, Medtronic, Boston Scientific and Stryker.

Concerns:

  • This could be a big blow for India’s competitiveness in items groups such as garments, engineering, and intermediary goods in the American market.
  • This could impact India’s competitiveness in items groups such as raw materials in the organic chemicals sector and intermediary goods in the US market, alongside items such as iron or steel, furniture, aluminum and electrical machinery.

How India benefitted from 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 — was 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.

What is GSP?

  • The GSP, the largest and oldest US trade preference programme, is designed to promote economic development by allowing duty-free entry for thousands of products from designated beneficiary countries.
  • It aims to promote economic growth in the developing world by providing preferential duty-free entry for up to 4,800 products from 129 designated beneficiary countries and territories.
  • It was instituted on January 1, 1976, and authorised under the US Trade Act of 1974.

What is the objective of GSP?

  • The objective of GSP was to give development support to poor countries by promoting exports from them into the developed countries. GSP promotes sustainable development in beneficiary countries by helping these countries to increase and diversify their trade with the United States.
  • GSP provide opportunities for many of the world’s poorest countries to use trade to grow their economies and climb out of poverty.

Possible impact:

  • India’s Department of Commerce feels the impact is “minimal”, given that Indian exporters were only receiving duty-free benefits of $190 million on the country’s overall GSP-related trade of $5.6 billion.
  • Some experts feel the move will not have a major impact on India also because it has been diversifying its market in the Latin American and the African region and its trade with countries of the Global South has also been expanding at a “very competitive pace”.
  • At the same time, the move could hit Indian exporters if it gives an edge to competitors in its top export categories to the US.

Source:TH