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What is GSP and How Current Changes in GSP Affect India

What is GSP

What is the meaning of GSP?

GSP full form is Generalized System of Preferences is a unique tariff system extended to developing countries by developed countries. The developing countries are also known as the beneficiary countries or preference receiving countries. It allows low to zero tariff imports from developing countries making it a preferential agreement.

What is GSP – the Programme?

The Generalized System of Preferences GSP is a U.S. trade preference program that provides trade opportunities for many of the world’s underdeveloped countries to grow their economies and rise out of poverty through trade. The GSP meaning as explained previously is one of the oldest and largest U.S. trade preference programs. Established by the Trade Act of 1974, the GSP promotes the development of economies by abolishing duties on thousands of products when they are imported from one of the 120 designated countries or territories.

What does it do?

GSP endorses sustainable development in the eligible beneficiary countries under the GSP program by helping these countries increase and diversify their trade with the United States. A few of the items that India can export to the U.S. are namely agarbatti, copper items and kitchen household products, non-electrical lamps and lighting fixtures, etc. All these products are eligible for duty-free treatment when imported by the U.S., thus, promoting economic growth and development for the developing countries.

In addition to aiding developing countries, GSP also supports U.S. jobs and helps keep American companies competitive. By transferring the GSP imports from the docs to U.S. consumers, farmers and manufacturers, it supports thousands of jobs and families in the United States. Furthermore, it boosts the American competitiveness by the reduction in costs of imported inputs used by U.S. companies to manufacture goods. It is specifically essential to U.S. small businesses, who rely on the programs duty savings to stay competitive. Besides promoting economic development opportunities in developing countries, the GSP full meaning which has been explained earlier also supports development in beneficiary countries in affording worker rights to their people and enforcing intellectual property rights as well as the rule of law. This has enabled the GSP program to promote and maintain its American values.

Benefits of GSP:

1. Indirect benefit for the Indian exporter – the Indian exporter benefits by way of reduced tariff or duty-free entry of eligible products.
2. The elimination of import duty on an Indian product provides a challenge for the importer to be competitive in terms of quality, product output and delivery on time.
3. The tariff preference aids new exporters to penetrate the market and establish increased exports to the U.S. to grow their market share and improve the profit margins to build the economy.

What is the importance of these trade ties for India?

India exports approximately $5 billion worth of products that fall under the GSP programme. Specific sectors such as the gem and jewelry, leather and processed foods are the leading players for GSP exports. Thus, GSP plays a vital role in the Indian economy. However, with periodic reviews of the programme, India has been on crossfire due to its question whether it meets the eligibility criteria that requires a GSP beneficiary country to assure the U.S. that t will provide reasonable access to its markets. India has to continuously be at the forefront of the GSP programme to export its products since the majority of the economy is dependent on exports.

What can be done to maintain trading ties?

For India to continue enjoying the GSP Programme and maintain its exports to the U.S., the Government could offer financial help to those sectors affected by the slump. However, since India is also a member of the World Trade Organisation (WTO), it has to maintain its compliance there as well. Since WTO regulates to protect all its members equally from preferential treatment. The answer here is that if the U.S. does not follow the WTO guidelines, other countries need to be able to protect their economies and industries. Even though India is a crucial player for the GSP Programme and being WTO compliant, the economy would be in a slump. However, there is still hope. To diminish the suffering of losses, the Government could consider a refund of taxes for goods not under GST. Assisting with the protection of jobs and providing input credit when it is not available, together with reducing the taxes temporarily would help the sectors sustain themselves.