Generalised System of Preferences
- August 21, 2021
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Generalised System of Preferences
Subject – IR
Context – U.S.is no longer interested in securing a bilateral free trade agreement (FTA) with India.
Concept –
- It was instituted in 1971 under the aegis of United Nations Conference on Trade and Development (UNCTAD).
- It is aimed at creating an enabling trading environment for developing countries.
- The countries which grant GSP preferences are Australia, Belarus, Canada, the European Union, Iceland, Japan, Kazakhstan, New Zealand, Norway, the Russian Federation, Switzerland, Turkey and the United States of America (13 countries).
- The provision and utilization of trade preferences is a key goal of the Istanbul Program of Actions adopted at the UN LDC IV in 2013, as further reaffirmed in SDGs Goal 17.
- The objective of UNCTAD’s support on GSP and other preferential arrangements is to help developing countries to increase utilization of GSP and other trade preferences.
US Generalised System of Preferences –
- The US has announced that it will terminate India’s designation as a beneficiary of its Generalized System of Preferences (GSP) from June 5, 2019.
- GSP is the largest and oldest U.S. trade preference program. Established by the Trade Act of 1974, GSP promotes economic development by eliminating duties on thousands of products when imported from one of 120 designated beneficiary countries and territories.
Impact of GSP Withdrawal
- India has been the biggest beneficiary of the GSP regime.
- The sectors which could face the impact of withdrawal of GSP regime are gem and jewellery, leather and processed foods.
- However, India has said that 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.
- This could impact India’s competitiveness in items groups such as raw materials in the organic chemicals sector and intermediary goods in the US market, alongside items such as iron or steel, furniture, aluminum and electrical machinery.
- The impact on small industries in the country could be significant. Such industries would lose their market share in the U.S. without fiscal support to help them maintain their edge.
Why GSP was Revoked?
- Due to a series of decisions taken by the Indian government has led to trade friction between two countries:
- India’s new e-commerce rules — which have impacted American companies like Amazon and Walmart (majority owner of Flipkart).
- Price controls on medical devices (cardiac stents).
- Tariffs on products like smart watches and high-end mobile phones.
- Lack of greater market access for the U.S. dairy industry.