Generalized System of Preferences

Generalized System of Preferences

Question: Choose the correct statement:
1) The Generalized System of Preferences is the largest and oldest United States trade preference programme
2) The United States of America revoke GSP over India because of two product one from Dairy and Other from medical mainly
3) The Indian export industry not much affected of the GSP removal for India by the US
4) The GSP helps spur sustainable development in beneficiary countries by helping them increase and diversify their trade with the US
(a) Only (1)
(b) Only (2) and (3)
(c) Only (3)
(d) All the above
Answer :(d)
Related facts:

  • The Generalized System of Preferences is the largest and oldest United States trade preference programme.
  • The U.S. intended it to promote economic development by eliminating duties on some products it imports from the 120 countries designated as beneficiaries.

Need for its Introduction:

  • It was established by the Trade Act of 1974.
  • According to the U.S. Trade Representative, the GSP (Generalized System of Preferences) helps spur sustainable development in beneficiary countries by helping them increase and diversify their trade with the U.S.
  • The U.S. also believes that moving GSP (Generalized System of Preferences) imports from the docks to U.S. consumers, farmers, and manufacturers supports tens of thousands of jobs in the U.S.
  • The other benefit is that “GSP (Generalized System of Preferences) boosts American competitiveness by reducing the costs of imported inputs used by U.S. companies to manufacture goods in the United States.”
  • The Trade Representative says the GSP (Generalized System of Preferences) is important to U.S. small businesses, many of which rely on the programmes’ duty savings to stay competitive.

Importance in Indian Context:

  • The Indian export industry not much affected of the GSP (Generalized System of Preferences) removal for India by the U.S.
  • The loss for the industry amounts to about $190 million on exports of $5.6 billion falling under the GSP category.
  • But specific sectors, such as gem and jewellery, leather and processed foods will lose the benefits of the programme.
  • A producer may be able to bear 2-3% of the loss from the change, but not more.
  • The loss, in export of some kinds of rice for example, may even exceed 10%. The landed price of goods from India has to be the same as it was before the GSP was removed.
  • If not, consumers of those products in the U.S. would gravitate to producers that enjoy the GSP benefits and hence are able to offer lower prices.
  • Obviously, it is difficult to get back a customer that a competitor takes away.

Reason of India in the cross-hairs:

  • The U.S. conducts periodic, review for India, taken up 2017-18, focused on ‘whether it is meeting the eligibility criterion that requires a GSP beneficiary country to assure the U.S. that it will provide equitable and reasonable access to its market.’
  • The Trade Representative accepted two petitions asserting that India did not meet the criterion: one from the National Milk Producers Federation and the U.S. Dairy Export Council, and the other from the Advanced Medical Technology Association.
  • Second, India has recently placed a cap on the prices of medical devices, like stents, that impacts U.S. exports of such devices.

Indian government can do:

  • The government must offer fiscal help to the affected sectors.
  • But the obvious question is: what can India do if it has to be compliant with World Trade Organisation rules that protect all its members equally from undue sops given to exporters.
  • A wry answer is that if the U.S. is not playing by WTO rules, other countries too need to be able to protect their industries. The Centre could consider refund of taxes for goods not under GST.
  • Use of electricity or petrol in the manufacture of such goods but for which an input credit is not available could qualify here.
  • Helping such sectors would also protect jobs; especially when job creation is at a low.

Achyutanand Pandey

Links:
https://www.thehindu.com/business/Economy/why-is-gsp-vital-to-india-us-trade-ties/article26482585.ece
https://www.thehindu.com/news/national/the-lowdown-on-the-official-secrets-act/article26482550.ece
https://www.cbp.gov/trade/priority-issues/trade-agreements/special-trade-legislation/generalized-system-preferences