What is Generalised System of Preferences (GSP)?

The US has decided to remove India from the list of countries eligible to get benefits under the Generalised System of Preferences (GPS) scheme. This scheme provides trade preferences to the developing and the poor countries.

What is Generalised System of Preferences (GSP) scheme?

This scheme enables developed countries like the US to provide trade preferences to developing countries

Under WTO, all members should be treated equally without discrimination.
Example- If the US reduces tariff for one country, it has to reduced for all WTO members. This is known as the Most-favoured Nation status.

However, there are a few exceptions. The WTO contains provisions that enables developed countries to give differential and more favourable treatment to developing countries.

This forms the basis for the Generalized System of Preferences (GSP). Under the GSP, developed countries offer preferential treatment (such as zero or low duties on imports) to products from developing countries.

The US gives GPS to up to 4,800 products from 129 countries and territories. These 129 countries can export the eligible products to the US without paying any duty/ tariffs.

The purpose of the GPS is to promote economic growth and “to provide opportunities for many of the world’s poorest countries to use trade to grow their economies and climb out of poverty.”

The GPS is helpful to the developed countries as well. The US can import inputs used by its companies at reduced costs. It boosts American competitiveness.

Why the US has decided to remove India?

The reason cited by Donald Trump is that India has failed to assure the US companies of “equitable and reasonable access to its markets’

The US particularly wants relaxation in the norms for export of medical devices and dairy products.

Some reasons which could have triggered the decision-

• There are non-tariff barriers to the dairy products from the US.
• The Government’s decision to control the prices of medical devices such as cardiac stents and knee-implants. The prices of these devices were cut by as much as 85 %. It hurt the US pharmaceutical industry.
• The recent changes in the E-commerce policy which has made it difficult for online retailers like Amazon, Flipkart-Walmart to operate in India.

What will be the impact?

India is the largest beneficiary of the scheme. In 2017, India exported $5.7 billion worth of goods into the US under the Generalised system of preferences.

But, these exports of around $5.6 billion amounted to only 12% of the total exports to the US. So, it might have a limited impact on the overall exports of the country.

But, it will hurt those industries whose products are eligible to be exported under GSP.

It could lead to a loss of unemployment

References:

//www.wto.org/english/tratop_E/devel_e/dev_special_differential_provisions_e.htm

//ustr.gov/issue-areas/trade-development/preference-programs/generalized-system-preference-gsp