Generalized System of Preference (GSP): Goal or Not a Goal?

Trade War between China & the U.S. is at its all-time high. From the perspective of India, this is considered to be beneficial as new export opportunities in both countries are created. But this happiness was ephemeral in nature i.e. till the time U.S. withdrew India from Generalized System of Preference (GSP).

Generalized System of Preference (GSP) is a preferential tariff system provided by developed countries to developing countries. Thus under this system imports from such developing nations are at concessional/zero rates. Many developed countries like the United States, European Union, United Kingdom, Japan, etc gives GSPs while importing from developing nations.

Out of the total 120 countries benefiting from GSPs, India & Brazil is the top beneficiary of the same. In the year 2017, India has a trade surplus of $27.3 billion with the USA. India majorly exports Organic Chemicals, Plastics & Articles, Rubber & Articles, Articles of Leather, Articles of Stone, Plaster & Cement, Articles of Iron or Steel, Nuclear Reactors, Boilers & Machinery, Electrical Machinery & Vehicles.

The US has actually removed 94 agricultural & handicrafts products from the list. Out of these 94 products, approximately 50% of them are exported by India. Thus according to one research, this withdrawal will cost US$19 crore to India. Thus now exports from India will be costly & will also reduce competitive advantage in the US market. Not only is this one of the major setbacks of the same is, reduction in foreign reserves.

US government says that India did not give us “Fair & Equitable” access to its market. Exporters of USA are facing restrictions while exporting to India. Before taking this intense step US in 2018 has also started imposing tariffs on Indian steel (25%) & aluminum (10%).

 At this point in time to achieve the projected “Growth rate” given by the Modi government, it becomes of immense importance to create new export opportunities to offset the loss. According to a few Indian Politicians, this will not impact India much. Stock Markets also took it neutrally in the long run. Now whether it will impact negatively or not only time will say.

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