Generalized System of Preferences [GSP]

By : Neha Dhyani

Updated : Mar 24, 2022, 13:41

The Generalized System of Preferences (GSP) is an American commercial program that allows goods from designated beneficiary nations, primarily developing countries, to enter duty-free. To be more specific, the United States does not levy import duties on articles imported from India to a significant amount. These nations are called Most Favored Nations (MFN). The Trade Act of 1974 introduced the Generalized System of Preferences on January 1, 1976.

Background of Generalized System of Preferences

  • The concept of offering developing countries preferred tariff rates in industrialized countries was initially proposed at the UNCTAD summit in 1964.
  • The GSP was established in 1971 after being accepted by UNCTAD in New Delhi in 1968.
  • The UNCTAD secretariat is now aware of 13 countries' GSP systems.

Benefits of Generalized System of Preference

  • Economic growth and development in developing countries are aided by assisting recipient countries in expanding and diversifying their commerce with industrialised countries.
  • Thousands of jobs are supported in developed countries by moving GSP imports from the docks to consumers, farmers, and manufacturers.
  • Company GSP improves competitiveness by lowering the cost of imported inputs used by businesses to produce goods.
  • GSP promotes global ideals by assisting beneficiary nations in granting their citizens labour rights, upholding intellectual property rights, and promoting the rule of law.
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Generalized System of Preferences for India

  • Indirectly, Indian exporters gain from lower tariffs or duty-free entrance of qualifying Indian items.
  • Import duties on Indian products can be reduced or eliminated, making them more competitive.
  • This tariff preference aids new exporters in breaking into a market, and existing exporters expand their market share and increase profit margins.
  • It enables India to join global value chains and, as a result, worldwide markets.

Impact of Generalised System of Preferences withdrawal in India

  • India's GSP-eligible products are from labour-intensive industries, including textiles, handlooms, and agriculture.
  • Out of total exports of $48 billion in 2017-18, India will lose out on advantageous tariffs of almost $5.6 billion under the GSP method.
  • India may lose market share in the United States to competitors such as Vietnam and Bangladesh, who will enjoy duty-free entry.

Indian exports to the United States are primarily intermediaries and do not compete directly with US producers, hence benefiting the US economy. As a gesture of goodwill, the US should consider extending India's eligibility as a way of reaffirming its commitment to our mutually beneficial partnership. GSP remains a critical component of overall trade engagement and must continue to be available to Indian exporters interested in targeting US markets.

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FAQs on Generalized System of Preferences

Q.1. The US withdrew the Generalized System of Preferences benefits from which country?

The US withdrew the Generalized System of Preferences benefits from India recently.

Q.2. What was the worth of the generalized system of preferences taken from India?

The benefits of the Generalized System of Preferences withdrawn from India were worth $70 million.

Q.3. How will the Generalized System of Preferences withdrawal impact India?

In the United States, India may lose market share to competitors such as Vietnam and Bangladesh, who will continue to enjoy duty-free access.

Q.4. Which countries are in a position to grant a Generalized System of Preferences?

Listed below are some of the countries that grant a Generalized System of Preferences:

  • Australia
  • USA
  • Belarus
  • Turkey
  • Canada
  • Switzerland
  • EU
  • Russia
  • Iceland
  • Norway
  • Japan
  • New Zealand
  • Kazakhstan