Generalised System of Preferences (GSP)

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Context

• In the complex realm of international trade, the "generalised system of preferences," or GSP, holds a unique position.
• This system has been a cornerstone of global trade policies for nearly half a century, aimed at fostering economic reform in developing countries through tariff reduction incentives.

Definition of GSP

• GSP stands for the Generalised System of Preferences.
• It is a framework adopted by most developed countries to provide economic incentives to developing nations by lowering tariffs on their exports.

Customisation of GSP Programmes

• Each developed country tailors its own GSP programme.
• These programmes include specific qualification criteria deemed essential for economic reform.
• Despite variations, all GSP programmes are designed to prevent adverse effects on domestic production.

Significance of GSP

• GSP is considered the oldest and most extensive form of "aid for trade" within the modern multilateral trading system.
• It is enshrined within the World Trade Organization (WTO) framework, highlighting its global importance.

BACKGROUND Generalized System of Preferences (GSP) Withdrawal: Implications for India The United States' decision to withdraw the Generalized System of Preferences (GSP) benefits, effective from June 5, 2019, has significant repercussions for India's export sector. GSP, an arrangement aimed at facilitating concessional or zero-tariff imports from developing countries into the US, has been a crucial avenue for promoting trade and economic growth. Understanding Generalized System of Preferences (GSP) GSP is a preferential tariff system offered by developed countries to developing nations, allowing for reduced or zero tariffs on imports from beneficiary countries. Established in 1976 under the Trade Act of 1974, the US has been a key proponent of GSP, providing tariff benefits to nearly 120 designated beneficiary countries and territories. Objectives and Beneficiaries The primary objective of GSP is to support the economic development of poorer countries by promoting their exports to developed nations. India, along with Brazil, has been a major beneficiary of GSP, enjoying preferential tariff treatment for various export products. Procedure and Product Coverage Under GSP, the US government annually reviews eligible countries and products, offering them lower-than-normal tariffs compared to other WTO members. Covered products include agricultural goods, handicrafts, and specialized items that are typically the strengths of developing countries. GSP vs. WTO Trade Arrangements GSP provides exemptions to the Most Favored Nation (MFN) clause of the WTO, allowing developed countries to offer preferential treatment to developing partners. Trump Administration's Approach The Trump administration's decision to withdraw GSP benefits for 94 products from all beneficiary countries reflects a broader policy shift. The move, effective since November 1, 2018, primarily affects agricultural and handicraft exports. Impact on India India, exporting nearly 50 of the affected products, stands to bear a substantial impact, given its reliance on GSP benefits. The removal of GSP benefits threatens exports worth approximately $5.6 billion, a significant portion of India's total exports to the US. Conclusion The withdrawal of GSP benefits by the US underscores a toughening stance on trade, particularly with countries like India that have benefited significantly from the program. As negotiations and discussions continue, India faces the challenge of navigating a shifting trade landscape while seeking avenues to maintain and enhance its export competitiveness.

Renewing GSP

• Renewing the Generalised System of Preferences (GSP) in the United States is a critical task due to its expiration and the challenges associated with bipartisan legislative action.

Legislative Dynamics

• The U.S. GSP programme's unique feature is its periodic expiration, subject to Congressional renewal.
• Bipartisan support for new legislation is challenging, particularly in a polarised political environment.
• Despite assurances, the programme remains in limbo since its expiry in 2020.

Importance of GSP

• GSP facilitates stable market access for developing countries, particularly those struggling to engage in global trade.
• It benefits small businesses and women-owned enterprises, extending their reach beyond domestic markets.
• Recent analysis underscores its role in providing alternatives to Chinese imports and supporting suppliers in trusted developing country markets.
• GSP criteria promote labour reforms, environmental sustainability, and intellectual property rights protection.
• Importantly, GSP imports reduce tariff costs for American companies, including many small- and medium-sized enterprises.

Coalitions of Support

• Diverse coalitions in the U.S. advocate for GSP renewal, emphasizing its significance in various sectors.
• Bipartisan support is evident, with Florida representatives urging urgent GSP renewal to benefit consumers and manufacturers.
• GSP aligns with evolving supply chain strategies, including friendshoring and nearshoring initiatives.
• Notably, there's bipartisan enthusiasm for resuming GSP negotiations with India, reflecting broader support for international trade cooperation.

U.S.-India Trade Relationship

• The U.S.-India trade relationship holds significant potential, with the renewal of the Generalised System of Preferences (GSP) serving as a catalyst for further growth and cooperation.

GSP Renewal

• GSP renewal offers an opportunity for comprehensive U.S.-India trade negotiations, potentially elevating bilateral trade beyond its current $200 billion mark.
• A higher level of ambition in trade is essential to advance the strategic partnership between the two nations.

Previous Negotiations and Potential Impact

• Prior to GSP's expiry in 2020, negotiations between the U.S. Trade Representative and the Indian Ministry of Commerce and Industry showed promise.
• Estimates suggested that a bilateral trade agreement could encompass up to $10 billion in trade, spanning various sectors such as medical devices, agriculture, ethanol, and information technology.

Challenges and Opportunities

• While India has pursued free trade agreements with multiple partners, including the EU, UK, Australia, and others, the Biden administration's stance on FTAs remains cautious.
• Existing trade dialogues lack the leverage necessary for impactful negotiations, hindering the achievement of ambitious trade goals.
• Despite collaborations in critical and emerging technologies, regulatory uncertainties impede stable investments and business operations.

The Role of GSP in Trade Enhancement

• GSP presents a significant opportunity for both sides to enhance their trade relations.
• Negotiations on India's GSP benefits, contingent upon Congressional renewal, could cover various aspects, including trade in goods and services, labour rights, environmental enforcement, and regulatory practices.
• While GSP alone may not suffice, it signifies a mutual commitment to advancing bilateral trade cooperation.

Conclusion

• As the U.S.-India strategic partnership evolves and their roles in the Indo-Pacific region become increasingly pivotal, leveraging GSP renewal can signal a shared commitment to fostering a robust and mutually beneficial trade relationship.
• While challenges persist, proactive engagement and strategic cooperation can pave the way for substantial progress in trade cooperation between the two nations.

READ ALL ABOUT US-INDIA TRADE RELATIONS:

https://www.iasgyan.in/daily-current-affairs/india-us-trade-relations

https://www.iasgyan.in/daily-current-affairs/india-us-trade-policy#:~:text=India%20is%20seeking%20a%20liberal,record%20levels%20during%20Covid%2D19.

PRACTICE QUESTION Q. Discuss the significance of renewing GSP benefits, particularly in the U.S.-India trade context. Evaluate challenges and propose strategies for policymakers.