Reconsidered Generalized System of Preference
United States government is mulling again over the reconsideration of Special status to India in the GSP system. If this preference is given to India, then India will have no tariffs on a few products that were imported to the US. This will help in the growth of India’s Exports. How in this context lets analyze what is GSP and why this is important for India.
What is GSP? GSP is a preferential tariff reduction method which reduces tariffs on various products that are imported by the US. This was introduced to promote trade relations with its members by providing reduced tariffs on the products. This simply means that different countries will have different tariffs when it comes to GSP. A country which has GSP status will have fewer tariffs when compared to the country which is not given GSP status by the US government.
In general, the government of the United states the GSP status to the countries which has good trade relations. And in most of the cases, GSP status is given to developing nations and GSP status is not given to developed nations. This is to make developing economies compete with already developed economies.
In general out of US, if you think of the term GSP, the main criteria for the status is whether the nation is a developed nation or a developing nation. But when it comes to US GSP, it gives GSP based on several factors. For example, if a country is supporting terrorism then even if it a developing nation GSP status will not be given. And if a country is going against US terms then GSP status will be withdrawn. So the tool GSP is used as a relationship tool between the two countries on one side US and another country on the other side.
According to the U.S. Trade Representative website, GSP was established by the Trade Act of 1974. According to the website of the U.S. Trade Representative, the GSP helps spur sustainable development in beneficiary countries by helping them increase and diversify their trade with the U.S. and also believes that moving GSP imports from the docks to U.S. consumers, farmers, and manufacturers supports tens of thousands of jobs in the U.S. The other benefit is that “GSP boosts American competitiveness by reducing the costs of imported inputs used by U.S. companies to manufacture goods in the United States.” The Trade Representative says the GSP is important to U.S. small businesses, many of which rely on the program’s duty savings to stay competitive.
So what is the importance of GSP for India? India exports many products to America. And if the status of GSP is given to India then, in that case, the products of India will have fewer tariffs in the US and hence will be available at a lesser price in the US. This helps Indian companies to compete in the US market. And if the status is removed, in that case, the products from India will have to pay a higher tariff to the US government. This will ultimately result in the price increase. Hence the product becomes non-competitive in the US market. Hence this affects the exports of India to the US.
Now India has a huge revenue from the exports and for any country, exports account for huge forex reserves. Now when the GSP status is revoked then this directly affects the exports as they become non-competitive in the US market. This will ultimately reduce the revenue for the government and eventually result in a trade deficit. That is we import a lot of things but our exports reduce and hence there is an imbalance of more money moving out of the country. This will affect the economy of the country.
In a simple view, the effect of GSP status will not be immediately visible. But in detailed observation, it may have a clear and worse effect on the Indian economy. there will be a considerable loss in terms of exports and revenue.
The United States gives this status considering many things. This status is reviewed consistently to meet its terms and will change that status of countries if required. Last year (2019), the US government has revoked the GSP status for India. he reviews for India, taken up last year, focussed on ‘whether it is meeting the eligibility criterion that requires a GSP beneficiary country to assure the U.S. that it will provide equitable and reasonable access to its market.’ The Trade Representative accepted two petitions asserting that India did not meet the criterion: one from the National Milk Producers Federation and the U.S. Dairy Export Council, and the other from the Advanced Medical Technology Association. India wants dairy products, which could form part of religious worship, certified that they were was only derived from animals that have not been fed food containing internal organs. Other exporters such as EU nations and New Zealand certify their products, but the U.S. has so far not done so. Second, India has recently placed a cap on the prices of medical devices, like stents, that impacts U.S. exports of such devices.
This even highlighted during the visit of Trump, the president of the United States to India. It is expected that the discussion of GSP status to India will be discussed. But nothing has come out at that time.
After almost a year now the US government has announced that it is rethinking to give GSP status to India. It has clearly said that we are open to give GSP status back to India but we want a suitable counteroffer from the Indian government.
This means that it will for sure give the GSP status and clearly there is a benefit that is being gained by India. So the US wanted a similar manner worthy trade deal with India so that both nations will benefit equally. Now, this comment came in news on Thursday, June 19th 2020. Now It is time for India to take proper action on this and come up with a trade understanding that will benefit both countries.
With no doubt, rethinking the status of GSP will benefit India. And the exports of the country will increase and the companies and people who got affected last year due to revoke of GSP will benefit from this. So we have to wait and see what the government of India will do and try to get this.
until then see you in next article…