Bilateral International Relations Prelims cum Mains

Trump informs Congress about intent to terminate GSP designation of India, Turkey

The News

  • Recently, US President Donald Trump expressed his intentions to end the preferential trade status granted to India and Turkey.

 

What is Generalised System of Preferences (GSP)?

  • 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.
  • The U.S. GSP programme promotes sustainable development in beneficiary countries by helping developing countries increase and diversify their trade with the United States.
  • It promotes economic development by eliminating duties on thousands of products when imported from one of the designated beneficiary countries and territories.
  • Under the United States GSP programme, certain products can enter the US duty-free if the beneficiary developing countries meet the eligibility criteria established by U.S. Congress.
  • GSP criteria:
    • Respecting arbitral awards in favour of US citizens or corporations
    • Combatting child labour
    • Respecting internationally recognised worker rights
    • Providing adequate and effective intellectual property protection
    • Providing the US with equitable and reasonable market access
  • The beneficiaries and products covered under the scheme are revised annually.

 

Background

  • In 2018, U.S dairy and medical device industries filed market access petitions against India due to recent policy decisions in India, which were perceived as trade barriers.
  • Later, the Office of the United States Trade Representative (USTR) announced that it would review the GSP eligibility of India, Indonesia, and Kazakhstan.
  • In August 2018, India made a final plea for continuation of GSP benefits, arguing that most of the Indian products imported by the U.S. under the GSP are raw materials or important intermediaries of value chains, which enables the U.S. economy to be more globally competitive.
  • With the new e-commerce rules in India, US-India trade ties were further hurt , which is said to be restricting the business of Amazon.com Inc and Walmart Inc-backed Flipkart in India.

Note:

  • As on December 2018, India and Brazil were the major beneficiaries in terms of export volume realised under GSP.
  • However, imports from China are ineligible for GSP benefits.

 

News Summary

  • US intends to terminate India’s and Turkey’s designations as beneficiary developing countries under the GSP programme because they no longer comply with the statutory eligibility criteria.
  • India’s termination from GSP follows its failure to provide the United States with assurances that it will provide equitable and reasonable access to its markets in numerous sectors.
  • These changes would not be immediate and will be effective after the notifications to the US Congress and the government of India, and will be enacted by a Presidential Proclamation.
  • The announcement could be seen as a major setback to bilateral trade ties.

 

Impact on India

  • The products covered under GSP are mainly agricultural products including animal husbandry, meat and fisheries and handicraft products, employing an large number of population in India. Thus losing a major market can impact the profits of these traders.
  • However, the withdrawal of GSP benefits to India will have a minimal and moderate impact, as India gets a minimal duty benefit of only $190 million annually out of total exports goods worth $5.6 billion under the GSP.

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