What is Generalised System of Preferences (GSP)?
Generalised System of Preferences (GSP) is an American business program that offers Duty Free Entry to the products of the designated beneficiary countries especially developing countries in the American market. More precisely; the United States does not charge import duty on the goods imported from India upto a good extent.
The policy of the Generalised System of Preferences provides Duty Free entry in the United States to approximately 4,800 products of 129 developing countries. The Generalised System of Preferences was established on January 1, 1976 by the Trade Act of 1974.
GSP had expired on July 31, 2013, and was most recently reauthorized on June 29, 2015 by the former President Obama.
Recently USA has excluded India from the list of beneficiaries of this program. In this article we have discussed the impacts of this decision on the Indian economy and Indian exporters.
India and USA Trade;
According to the united state trade representative bilateral trade between India and USA was around 126 billion dollar in 2017 which comprises of USA’s export of $ 49.4 billion and import $ 76.7 billion from India. It means India has trade surplus of $27.3 billion with USA.
Indian exports to USA comprises of mainly; textiles, fruit, vegetables, handicrafts, chemicals, fishery products and agricultural products while America’s export to India comprises of machinery, agricultural products, IT products, medical products and automobile vehicles, etc.
How termination from the GSP will affect India;
According to the united state trade representative report released in January, India has got the most benefit of the GSP program. In the financial year 2017, India's $ 5.7 billion export was duty free while Turkey exported duty free goods worth US $ 1.7 billion to USA. India is the world's largest recipient of benefits from the GSP program.
So far, there are 1930 Indian products exported to USA without paying import duty. But after this development now Indian exporters have to pay import duty on the products like handicrafts, chemicals, fishery products and agricultural allied products.
This move will increase the cost of these products and their competitive advantage in the US market. Even thousands of jobs can be cut down in the India.
But if we believe Commerce Secretary Anup Wadhawan; he says that India exports around US $ 5.6 billion to USA out of which just $ 1.9 cr worth of items are in the category of no custom duty.
The overall impact of the Indian termination from the GSP program will cost around US$ 19 cr.
The exclusion of India from the GSP program will hamper the competitiveness of the manufacturing sector of India. The price of most chemical product is expected to increase by around 5%, which is a major part of India's total exports to USA.
Why did the USA do this?
America’s trade deficit in goods with the rest of the world rose to its all time high to $891.3 billion in the FY 2018. India also have trade surplus of around USD 21.3 billion in 2018.
The USA says that due to import restrictions in India, its exporters are experiencing loss in India. That is why USA had started reviewing the GSP status to Indian products. Last year, on June 1, 2018, America imposed 25% tariff on Indian steel and 10% tariff on aluminium.
Trump says that India did not give America 'equitable and fair' access to its market. Trump has also criticized the duties on many American products in India.
Keep in mind that India charges 100% tariff on the Harley Davidson bike exported from the US to India, while the United States does not take any tax on similar goods imported from India. Trump said that we will also impose equal tariff on Indian imports.
Since a long time; USA has been demanding removal of pricing cap on medical devices imported to India, which is harming US companies. Apart from this, America wants that India should provide more market access to IT and agricultural products coming from the USA.
Statistics show that India's trade with America is in surplus, and on the other hand America’s trade deficit is increasing rapidly. So USA wants to check its trade deficit at any cost.
In the conclusion it is worth to mention that at present India and USA is having very good trade relations because India is one of the largest arm buyers of USA and on the other hand Indian exporters are having such a big US market to export their products. Hence i would suggest to leaders of both countries that India and USA should try hard for continuing the Generalised System of Preferences (GSP).