Economics

GSP: win-win for Indo-U.S. trade

The News

  • India urged the Trump Administration to retain the Generalised System of Preferences (GSP) beneficiary status to it, as a withdrawal would be discriminatory and detrimental to the development, finance and trade needs of the country.

 

What is Generalised System of Preferences?

  • The Generalised System of Preferences (GSP) is one of the oldest trade preference programmes in the world, and was designed to provide zero duties or preferential access for developing countries to advanced markets.

 

Background

  • The U.S. GSP programme was established by the U.S. Trade Act of 1974.
  • It promotes economic development by eliminating duties on thousands of products when imported from one of the 129 designated beneficiary countries and territories.
  • In 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.

 

Earlier impacts of GSP

  • For over 40 years, GSP has fulfilled its purpose of promoting economic growth in a large number of developing countries by allowing increased exports of eligible products.
  • GSP amounts to less than 1% of total U.S. imports, despite GSP’s low significance in the U.S. trade balance, its benefits ultimately help U.S. consumers and exporters by contributing to lower pricing of final products.
  • Most of the 3,500 Indian products imported by the U.S. under the GSP are raw materials or important intermediaries of value chains. This enables the U.S. economy to be more globally competitive.
  • In 2017, the top 10 GSP products exported by India to the U.S. were motor vehicle parts, ferro alloys, precious metal jewellery, monumental or building stone, rubber tyres, travel goods, certain sweetened or flavored waters, polyacetals/polyethers/polyesters, electric motors and generators, and insulated cables and wires.
  • With the exceptions of precious metal jewelry and sweetened water, all of these products are 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 GSP is beneficial for both India and US?

  • 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.
  • Further, it is important to note that Indian exports to the U.S. under the GSP programme are mostly intermediaries, and are not in direct competition with U.S. producers — ultimately, these goods benefit the U.S. economy.
  • India’s continued eligibility for GSP makes good economic sense given the low value, high-quality, and nature of its imports.

 

Conclusion

  • The India-U.S. relationship has continued to grow stronger as India liberalises along a positive and steady trajectory.
  • In addition to the economic perspective, the U.S. should consider continuing India’s GSP eligibility as a gesture of goodwill that reaffirms its commitment to the mutually beneficial relationship between our two countries.
  • India and the U.S. will continue to intensify their economic relationship and interdependencies, and it is, therefore, critical to maintain the vision of the potential this partnership offers.

Image result for gsp india us

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