About Us  :  Online Enquiry


What is Generalised System of preferences?

What is Generalized System of Preferences?

  • Generalized System of Preferences (GSP) is a preferential tariff system extended by developed countries to developing countries (also known as preference receiving countries or beneficiary countries).
  • It is a preferential arrangement in the sense that it allows concessional low/zero tariff imports from developing countries.
  • Developed countries including the US, EU, UK, Japan etc., gives GSPs to imports from developing countries. GSP involves reduced/zero tariffs of eligible products exported by beneficiary countries to the markets of GSP providing countries.
  • The US has a strong GSP regime for developing countries since its launch in 1976, by the Trade Act of 1974. In the past, thousands of products were imported from nearly 120 designated beneficiary countries and territories.

What is the objective of Generalized System of Preferences (GSP)?

  • The objective of GSP was to give development support to poor countries by promoting exports from them into the developed countries.
  • According to the US Trade Representative Office website, 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” – USTR.
  • According to the USTR, “GSP also boosts American competitiveness by reducing costs of imported inputs used by U.S. companies to manufacture goods in the United States.”

Who are the beneficiaries under General system of preferences (GSP)?

  • The beneficiaries of GSP are around 120 developing countries. As of 2017, India and Brazil were the major beneficiaries in terms of export volume realized under GSP. Imports from China and some developing countries are ineligible for GSP benefits.
  • The beneficiaries and products covered under the scheme are revised annually.

Curbing of benefits under General system of preferences 

  •  United States intends to terminate India’s and Turkey’s designations as beneficiary developing countries under the Generalized System of Preferences (GSP) program because they no longer comply with the statutory eligibility criteria
  • The move came two days after Trump’s reference to India as a “very-high tariff nation” and his demand for a “reciprocal tax” on goods from India is in keeping with Washington’s concerted attacks on India’s trade stance.
  • In his address to the Conservative Political Action Conference in Washington DC Saturday, Trump went back to his often-cited example of Harley-Davidson motorcycles to substantiate his point about India, which came at a time when the US and China have managed a temporary truce over tariffs.

India’s tariff structure

  • India’s tariffs used to be high until about the late 1990s, with the peak customs duty — the highest of the normal rates — on non-agriculture products steadily coming down from 150% in 1991-92 to 40% in 1997-98 and subsequently, to 20% in 2004-05 and 10 per cent in 2007-08.
  • According to WTO data, India’s average applied tariff is around 13% and it plans to move toward the ASEAN tariff rates progressively (approximately 5% on average). There has, however, been a move to increase duties on a number of items by the government over the last five years.


What is Eligibility review w.r.t General system of preferences ?

  • 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.
  • India had also said its requirement that the source animal of dairy products had never been fed animal-derived blood meals was “non-negotiable” from a cultural standpoint and it could not dilute this requirement in its certification procedure.
  • “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,” said the USTR statement.

How GSP will impact India?

  • 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.
  • “The amount of price advantage India has versus competitor countries and what happens to their GSP privileges will determine the extent to which India’s exports will be impacted,” said Dr Jaimini Bhagwati, former ambassador to the UK who also worked in the World Bank.

What will unfold in the future?

  • These changes announced may not take effect until at least 60 days after the notifications are sent to the US Congress and the governments of India, and will be enacted by a Presidential Proclamation.
  • India, in June 2018, had intended to impose higher tariffs on 29 goods imported from the US in retaliation to the country’s decision to impose hefty tariffs on imported steel and aluminum products.
  • The move, which could potentially impact products like walnuts, almonds and chickpeas, has been deferred several times.

Current Affairs 2020

Send this to a friend