Generalized System of Preferences (GSP)

Source-This post on Generalized System of Preferences (GSP) has been created based on the article “Renew the generalised system of preferences” published in “The Hindu” on 19 May 2024.

UPSC Syllabus-GS Paper-2-Intrernational Relations- Effect of Policies and Politics of Developed and Developing Countries on India’s interests.

Context-The article highlights the need for the USA to renew its generalized system of preferences with India. What sets apart the U.S. GSP program is that it requires periodic renewal by Congress as its authorization expires. Generalized System of Preferences

What is Generalized System of Preferences?

1) GSP is the oldest and most widespread form of trade assistance in the current global trading system, recognized by the World Trade Organization (WTO).

2) It is an important international trade terminology referring to an approach adopted by developed countries to offer lower tariffs as incentives for economic reform in developing countries.

3) Each developed country tailors its GSP program to find important criteria for economic reform ensuring that it doesn’t hurt local production.

Read more- Recent Development in India-US Relations

What is the significance of GSP for developing nations?

1) GSP can play a vital role in establishing stable market access for developing countries that otherwise struggle to tap into global trade flows.

2)  It can be especially valuable for small businesses and women-owned enterprises, thus helping to empower them beyond limited domestic markets.

3) It is vital in offering alternatives to Chinese imports and providing an advantage to suppliers in trusted developing country markets.

4) It promotes reforms on labour and environmental sustainability and intellectual property rights protection.

5) Imports facilitated by GSP lead to lower tariff costs for American businesses especially for small and medium-sized enterprises.

What are the issues in India-USA trade relations?

1) There are several trade dialogues between the two. However, these dialogues lack the necessary leverage for tough trade negotiations that can aim for ambitious outcomes.

2) Private sectors in both countries are collaborating to boost investments in key sectors like smartphone manufacturing and semiconductor production. However, they face challenges due to the lack of regulatory stability and ease of doing business, which could be addressed by a robust and enforceable trade agreement.

What is the significance of renewal of GSP for India?

There is bipartisan support for renewing GSP with India with Florida House members emphasizing its role in diversifying sourcing away from China and reducing tariff bills for consumers and manufacturers.

1) Renewing GSP serves as a platform for extensive trade talks between the U.S. and India. These negotiations could elevate their bilateral trade from its current $200 billion mark to even greater heights.

2) The Biden administration has stated that it will not sign FTA with any nation.In the absence of that, there could be no better trade tool or policy with India than GSP

3) It will cover a wide-ranging sectors like medical devices, agriculture, fuel ethanol, and information technology products.

4) GSP negotiations with India could cover trade in goods and services, labor rights, environmental laws, regulatory practices, and ease of doing business.

As the U.S.-India strategic partnership strengthens, they should aspire to deepen their trade ties. Renewing GSP could serve as a powerful symbol of their shared commitment to this path of advancement.

Question for practice

What is Generalized System of Preferences? What is the significance of GSP for developing nations?