The U.S. government has recently revealed its intention to terminate India’s status as a beneficiary of the Generalized System of Preferences (GSP). Among other emerging economies, Turkey’s beneficiary designation will be withdrawn from this trade preference program as well.
Defining the GSP
A concept originating from the United Nations Conference on Trade and Development (UNCTAD) in 1964 in New Delhi, GSP provides preferential tariff rates for developing countries in the markets of industrialized nations. This policy was implemented in 1971, with 13 nations currently having a national GSP scheme declared to the UNCTAD Secretariat. These include Australia, Belarus, Canada, the European Union, Iceland, Japan, Kazakhstan, New Zealand, Norway, the Russian Federation, Switzerland, Turkey, and the United States of America. GSP operates as the most extensive and enduring U.S. trade preference initiative. Approved by the Trade Act of 1974, it assists economic progress by abolishing duties on several products when imported from one of 120 designated beneficiary nations and territories.
The Implications of GSP Withdrawal
India, being the largest beneficiary of the GSP system, is expected to face significant effects. In 2017 alone, India recorded exports worth $5.58 billion under the GSP regime to the U.S., translating to over 12% of India’s total goods exports totalling $45.2 billion. Despite these figures, India suggests that the effects are only negligible, noting that the country’s overall GSP-related trade of $5.6 billion only enjoyed duty-free benefits amounting to $190 million. However, this scenario stands to change if this decision gives leverage to rival nations in India’s chief export categories to the U.S.
This situation could hinder India’s competitiveness in the global market, primarily impacting raw materials within the organic chemicals sector, as well as intermediary goods. Other affected industries may include iron or steel, furniture, aluminum, and electrical machinery. Smaller enterprises could face significant repercussions as they lose essential U.S. market share without the necessary financial support to maintain their competitive advantage.
Facts About GSP Withdrawal
| Country | GSP-related Exports (2017) | Total Goods Exports (2017) |
|---|---|---|
| India | $5.58 billion | $45.2 billion |
| Turkey | Not Available | Not Available |
The Reason Behind the GSP Revocation
The decision to rescind India’s beneficiary status steams from a series of determinations made by the Indian administration which have created trade tensions between the two nations. Some key issues include India’s new e-commerce rules affecting American corporations such as Amazon and Walmart, price controls on cardiac stents, tariffs on products including smartwatches and high-end mobile phones, and inadequate market accessibility for the U.S. dairy industry.
