The U.S. government has recently pulled back on its Generalized System of Preferences (GSP), affecting as many as 50 items, primarily within the agriculture and handloom sectors. These benefits, equating to $70 million, were previously given to India. In 2017, U.S. imports through the GSP totaled $21.2 billion, with India being the main beneficiary receiving $5.6 billion.
Impact of GSP Withdrawal on India
India stands to feel significant impact from this decision as a large portion of their exports under GSP come from sectors employing thousands of individuals, predominantly in rural areas via micro, small, and medium enterprises. The loss of such a substantial market can have severe consequences on these sectors’ profits.
Effects on the U.S. Economy
Conversely, the Federation of Indian Chambers of Commerce and Industry (FICCI) has expressed concerns that this termination could clash with the Trade Reform Act of 1974, which aims to foster economic development in developing countries. The ending of GSP could lead to an increase in costs for U.S. industries that utilize products under the program.
Background of U.S. – India Trade Relations
Over recent years, trade relationships between the U.S. and India have soured. The U.S. previously imposed tariffs on steel and aluminum imports from India and contested India’s export subsidy scheme at the World Trade Organization (WTO). In retaliation, India brought the U.S. to the WTO over the increased steel and aluminum tariffs and threatened to impose retaliatory tariffs worth $240 million on U.S. imports.
History of the GSP
The proposal to offer developing countries preferential tariff rates in industrialized nations’ markets was introduced at the first UNCTAD conference in 1964. Later, the GSP was adopted in New Delhi in 1968 and launched in 1971. As of now, 13 national GSP schemes have been notified to the UNCTAD secretariat.
Current Countries Granting GSP Preferences
| Country |
|---|
| Australia |
| Belarus |
| Canada |
| European Union |
| Iceland |
| Japan |
| Kazakhstan |
| New Zealand |
| Norway |
| Russian Federation |
| Switzerland |
| Turkey |
| United States of America |
The Role and Impact of GSP
Instituted by the Trade Act of 1974, the GSP is the largest and oldest U.S. trade preference program. The program works by eliminating duties on numerous products when imported from designated beneficiary countries or territories, promoting economic development.
Benefits of GSP to India and The U.S.
Indian exporters indirectly gain from the benefits that accumulate to importers through reduced tariffs or duty-free entry of eligible products from India, making them more competitive. For the U.S., cheaper, high-quality alternatives from India help reduce the overall cost of final products, boosting the global competitiveness of the U.S. economy.
The Global Reach and Influence of GSP
Globally, GSP has significantly contributed to economic growth in many developing countries by allowing increased exports. This is of considerable benefit to the worldwide economy, although it accounts for less than 1% of total U.S. imports.
The Way Forward
Moving forward, the GSP remains a central part of the trade engagement and should be maintained for Indian exporters aiming at U.S. markets. The U.S. might have considered continuing India’s GSP eligibility as a gesture of goodwill that reaffirms its commitment to the mutually beneficial relationship between the two countries. The relation between India and the U.S. has grown stronger as India continues to liberalize at a positive and steady pace. Both nations engage in numerous areas of mutual cooperation and share similar views on many global issues. The relationship must not be seen through a transactional lens only so as to avoid impacting the broader strategic dimensions of the partnership.